Lloyds takes a £250m hit from sale of Spanish bank

Lloyds has offloaded its unprofitable retail bank in Spain to Banco Sabadell at a loss of £250m. Nevertheless, that's £400m more in the coffers than it had last week.

by Rebecca Burn-Callander
Last Updated: 19 Aug 2013
It’s not been a barrel of laughs for Lloyds shareholders (mainly the UK taxpayer, which owns 39%) over the last few days.

On Friday Jim O’Neil, the head of the UKFI, the Treasury body tasked with readying the taxpayer-owned banks RBS and Lloyds for sale, suddenly resigned. The move was believed to signal a vote of no confidence in the banks under his charge. It could even scupper their chances of a takeover in the near future. Indeed, the UKFI’s attempt to offload 600 Lloyds branches to the Co-op fell through last week.

And now there’s this.

Lloyds has just sold off its private and retail banking business in Spain, losing £250m in the process. That’s on top of the billions in losses racked up by HBOS’s ill-fated expansion into Australia and Ireland – Lloyds bought the bank, alongside these toxic assets, in 2008.

The sale of the Spanish banking operations is part of an ongoing strategy to help Lloyds meet stringent new capital rules, brought in to make the banks safer after the financial crisis of 2008. On the plus side, the deal will see Lloyds’ capital ratio boosted by £400m, and the bank is also receiving a 1.8% stake in buyer Sabadell, Spain's fifth biggest bank, as part of the transaction.

Lloyds’ execs will probably breathe a sigh of relief that the thing is finally gone. The Spanish business lost €43m last year alone. Better to push the eject button now than face years of further losses… Lloyds is hanging on to its Spanish corporate banking operations, however. Clearly, that’s the more lucrative pie.

Lloyds is still the largest retail bank in the UK and the bank recently announced plans to focus its attentions on home turf in order to de-risk its portfolio. Lloyds has sold off operations in 12 countries over the past two years. It plans to significantly reduce its presence in 30 overall, leaving just 15 key markets.

It looks like this strategy – and indeed this sale - despite the losses in the short-term, have pleased the markets. Shares in Lloyds were up almost 1% this morning. The bank’s first-quarter results are due out tomorrow, however. Let’s see whether Lloyds can hang on to the positive sentiment a little longer….

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