(c) FT.com
July 6 2010
Royal Bank of Scotland is preparing to sell up to £3bn ($5bn) of real estate loans made during the property boom in the largest property disposal from its non-core banking business to date.
The disposal is part of a five-year project by RBS under the leadership of Stephen Hester, chief executive, to shed large chunks of its business that the bank can no longer afford to hold.
RBS has been working with Lazard to create a structure to sell a vast portfolio of real estate debt, the first time that a large UK lender has brought such a substantial number of loans to the market since the property crash.
The loans are part of the £258bn division carved out of the core business 18 months ago and headed by Rory Cullinan, the former deputy chairman of private equity at Renaissance Partners.
The portfolio had been shrunk to £194bn by the end of March, but property assets which have been harder to reduce, now account for more than a quarter of the total.
The sale is one of a number of initiatives that RBS is working on to the reduce its loan book.
Further sales of loans are likely if this proves successful. Also under consideration is putting property loans into listed vehicles or packaging and securitising them.
Although the non-core division comprises a slew of corporate lending and legacy trading positions, it is the property portfolio that causes investors the greatest concerns.
“The viability of the whole non-core wind-down has a lot to do with how the commercial real estate market pans out,” said Simon Maughan, analyst at MF Global.
Those close to the talks say that the project is in the early stages and that formal marketing has not yet begun. RBS and Lazard declined to comment.
Several private equity groups are expected to show an interest in the loan portfolio, although its size means the number of bidders is likely to remain fairly low.
Those in the market for such large books of complicated loans include Blackstone, LoanStar and Delancey, the company run by Jamie Ritblat, son of property tycoon Sir John Ritblat.
The disposal will be significant for the real estate market given the huge amounts of outstanding debt to the sector, and the worries about the need for aggressive action by the banks.
