Lloyds Bank is selling a $2.1 billion book of bad Australian commercial property loans and expects to take a fifty per cent haircut.
There is more. Morgan Stanley is alleged to have bought a Lloyds’ Gold Coast loan book with a face value of $700 million for between 30 and 40 cents in the dollar. Goldman Sachs and partners bought Lloyds’ NZ dud loans with a face value of $NZ1.3 billion for about 35 cents in the dollar (Source: AFR 15/3 $2.1bn impaired loans book hits block)
That adds to about $2.4 billion in wealth destroyed.
Lloyds acquired the duff loans when it took over Bank of Scotland in the GFC. Broadly, they are being sold for what the properties are worth on the market AFTER the borrower’s equity has been erased and AFTER unpaid interest has been written off.
Who says property prices in Australia are stable?
It looks like the old Bank of Scotland International banksters extended big licks of cash on some very dubious projects in their attempt to build an Aussie bank operation.
But this begs the question: was their risk management framework wildly different to every other bank? They worked for an institution that behaved prudently from 1695 to 2007. They learned at the same business schools as the employees of other banks. They were genuinely trying to lend properly.
Their profound failure using tools and methods identical to those available to the big 4 Aussie banks makes me very sceptical about the overall quality and security of Australian commercial property loans.
Australian banks have reported very low provisions for bad and doubtful debts – a key reason for their continued AA- ranking. Methinks there are quite a few dodgy loans tucked away in the extend-and-pretend files of Australia’s banks.
The worst part is, Australians have invested – and lost – chasing an empty chimeral property dream. Imagine if that equity and loan money had been put toward creating productive businesses or infrastructure instead. Lloyds Bank lost badly. So did Australia.
David Collyer owns ANZ shares.