Lloyds Banking Group has sold its loss making Spanish retail and private banking business, but has taken a £250m hit on the deal.
It has agreed to sell its operations in Spain - excluding its corporate banking business - to Banco Sabadell in exchange for a 1.8% equity stake worth around £72m and £17m in cash. The businesses being sold had total assets of £1.5bn and £0.7bn of deposits. The move is part of Lloyds' disposal programme to bolster its capital position. Investec analyst Ian Gordon said:
"Your Spanish mortgage could COSTA lot less" screamed the Halifax Spain marketing literature through the Noughties. It cost Banco Sabadell rather less today! In recent weeks, Lloyds has extricated itself from a poor deal with the Co-op, re-launched a thoughtful commercial banking strategy, executed a neat transaction to unlock value in St James's Place and now exited its unattractive Spanish retail business for a loss of £250m. Quite a few nuggets of good news, feeding heightened expectations ahead of Tuesday's first quarter interim management statement.
Ahead of tomorrow, our forecast for underlying pretax profit in the first quarter of £1.17bn appears to be marginally ahead of consensus (around £1.1bn). However, our enthusiasm is somewhat constrained by a weak outlook for revenue and returns and what we see as an already full valuation.
Gordon has a hold recommendation on Lloyds, but Gary Greenwood at Shore Capital issued a buy note:
This transaction is not material to the Lloyds investment case, in our view. However, it is interesting to note that Lloyds has been unable to offload the business for cash which perhaps highlights the difficulty of selling such assets at present. That said, given the low value of the equity stake in Sabadell the downside risk from owning this stake to Lloyds is relatively limited, while it perhaps provides an option on the upside risk should the Spanish bank's equity ever recover.
Lloyds is currently 0.7p higher at 53.61p.
