* Lloyds hires Deutsche Bank to advise on sale
* Analysts say sale could raise 800 mln stg
* Move seen as a response to FPC review of capital
* Banks awaiting clarity over capital shortfall
By Matt Scuffham
LONDON, April 19 British bank Lloyds
has hired advisers for the possible sale of its Scottish Widows
asset management arm, as it prepares for a likely regulatory
demand to raise more capital, sources said.
UK banks are having to consider further disposals after the
Bank of England said they must raise a total of 25 billion
pounds ($38 billion) of extra capital by the end of the year, to
be in a position to absorb future loan losses.
Industry sources and analysts say Lloyds Banking Group Plc,
heavily exposed to the UK housing market where prices have
declined in some parts of the country and whose capital has been
dented by the cost of compensating customers for mis-selling, is
one of the banks facing a shortfall, which could be in the
region of 3 billion pounds.
Lloyds has hired Deutsche Bank to advise on the
possible sale, sources familiar with the matter said on Friday.
But they stressed a formal sale process had not yet begun and
that Scottish Widows' insurance business was not up for sale.
Lloyds and Deutsche Bank declined to comment.
The bank's Scottish Widows Investment Partnership (SWIP),
which provides asset management services to both internal and
external clients, is a candidate for disposal because such
businesses have been struggling to hold on to investors' cash as
the popularity of passively managed alternatives has risen.
SWIP had 141.7 billion pounds under management at the end of
"A decision to sell SWIP is likely to have been taken in
response to the outcome of the recent FCA review into bank
capital," said analyst Gary Greenwood at brokerage Shore
Capital, referring to the newly established Financial Conduct
Authority whose remit is to police the financial stability of
Greenwood said the sale would bolster Lloyds' capital
position while having a limited impact on profitability.
Analysts estimate a sale could raise around 800 million
pounds and increase Lloyds' core Tier 1 capital by about 20
basis points. The ratio stood at 12 percent at the end of 2012,
or 8.1 percent after factoring in the impact of Basel III rules
on its risk-weighted assets (RWA).
Uncertainty over Lloyds' future capital requirements is a
distraction for Chief Executive Antonio Horta-Osorio as he
oversees the bank's recovery after the government pumped in 20.5
billion pounds to keep it afloat during the 2008 financial
crisis, leaving taxpayers with a 39 percent stake.
The bank has reduced its loan book, cut costs and reined in
bad debts. Its shares enjoyed a strong run in the early part of
2013, hitting a near two-year high of 56 pence and closing in on
the 61p level which the government regards as its break-even
price, raising hopes it might achieve a sale.
But the shares have subsequently dropped back amid
uncertainty over the extent of its capital shortfall and what
measures it must take to address it.
The stock was trading up 0.1p at 47p by 1416 GMT.
One senior banking executive told Reuters he regarded the
current level of regulatory uncertainty as "bizarre".
Expected meetings between individual banks and the regulator
in April to discuss their capital requirements have not yet
materialised, the executive told Reuters, effectively leaving
them in limbo until the situation is clarified. Regulatory
sources insist the timetable is on track, however.
Lloyds has already taken a number of steps to bolster its
capital. The bank is continuing to sell non-core loans - those
deemed to not fit with long-term strategy - and is in the
process of selling 632 branches to the Co-Op, although the deal
has been plagued by complications.
The bank sold a 20 percent stake in wealth manager St.
James's Place Plc for 520 million pounds last month, but
agreed not to sell its remaining 37 percent for at least a year.
Lloyds is keen to restore dividend payments, seen as a key
milestone on the path towards re-privatisation, but will need
approval from the regulator to do so.
$1 = 0.6539 British pounds)