| LONDON, March 9
LONDON, March 9 UK banks are selling hundreds of
millions of pounds of performing syndicated loans for UK
companies to foreign banks as they try to boost profitability by
reducing their exposure and even exit unprofitable relationships
altogether as pressure on balance sheets grows.
Barclays, HSBC, Lloyds and RBS
are quietly selling large chunks of investment-grade and
near investment-grade loans for UK companies in the secondary
market that do not meet their targeted returns.
“I estimate that hundreds of millions of euros have changed
hands, even billions. RBS, Lloyds and HSBC -- we’ve bought
assets from all of them,” a senior loan trader said.
Loan commitments of €70m-€150m that pay 40bp-60bp are being
sold on a single name basis, primarily to liquid Asian banks,
including Japan’s MUFG, Mizuho and SMBC and China’s ICBC, and
some European banks that are buying debt in UK companies with
ties to their economies, sources said.
“They are all investment-grade companies where we’ve taken
over the relationship and taken the UK banks out of the deal
entirely. The tickets are usually €100m, mostly denominated in
euros, and a few are denominated in sterling,” the senior loan
Another international bank said that it was being shown
individual assets and had bought pieces of three
investment-grade loans for UK companies, rather than full
UK and European banks have been cleaning up their balance
sheets for several years with multi-billion euro portfolio
sales, as they refocus on their top earning clients and areas of
expertise, which has brought a more domestic focus on their home
markets and clients.
Holding loans can be expensive due to increased regulation
and higher capital requirements and most banks need more
ancillary business to subsidise low-priced loans to
investment-grade companies and hit return targets.
Term loans are more capital intensive from a capital
perspective than undrawn revolving credits.
“All banks are being forced to rationalise with such intense
scrutiny on balance sheet. They are facing inevitable questions
on why they’re lending and what they have achieved in the last
three years,” a senior loan banker said.
UK banks, particularly RBS and Lloyds, have been scaling
down their international operations since the financial crisis.
RBS sold a £3bn portfolio of US and Canadian loans in February
2015 and a £3.69bn portfolio in April 2015 and has reduced its
Lloyds is almost predominantly focussed on the UK market now
and has cut its international footprint to six countries, from
30 in 2011.
This is the first time, however, that UK banks have had a
big clear out of UK clients that do not meet their return
requirements and are cutting their exposure to domestic
companies, several bankers said.
Lloyds tried to sell US$250m of loans for UK independent oil
company Premier Oil in an auction last November, but
withdrew the auction after the loans failed to attract bids and
meet the reserve price. Lloyds subsequently came under pressure
from Premier Oil not to sell as the company struggled to
complete a key loan refinancing.
“I’m surprised that UK banks are selling UK loans. They
retrenched to their home market, but now they’re exiting local
relationships too. I don’t think it's Brexit related, it's more
to do with profitability. Now that they’re focussing on their
home market, if it doesn’t make the return model, it’s got to
go,” the senior loan trader said.
The Bank of England is aware of the situation and is in the
early stage of looking into the matter, sources said. The Bank
of England declined to comment.
Some UK companies are refusing to give UK banks consent to
sell and transfer the loans in a bid to try to stop their debt
being held by foreign lenders, but this can turn UK banks into
‘hostile lenders’, which can refuse to agree to waivers or
refinancings or even block them.
“The problem is that even if UK banks find a seller, some
corporates are not agreeing to the transfer of their loans,” a
second senior loan banker said.
Post Brexit, some UK companies are eager to forge new
relationships with non-EU lenders, particularly if they have
expansion plans in those geographies, and are keen for UK banks
to sell their loans so that they can establish relationships
with Asian or US banks.
Barclays and HSBC declined to comment, Lloyds and RBS were
not immediately available to comment.
(Editing by Christopher Mangham)