LONDON Lloyds Banking Group (LLOY.L) has reached an agreement to sell $500 million of shipping loans from its remaining ship finance portfolio as the British bank cuts sector exposure, finance and banking sources familiar with the matter said on Wednesday.
The deal is the latest in a flurry of sales of ship finance loans, many of which are being put up for sale by banks under pressure to boost their capital to comply with new, stricter industry legislation since the financial crisis.
The banks have suffered alongside the shipping firms they lent to, as the latter endured one of their worst downturns in decades. Many firms defaulted on loans and several collapsed. As a result, banks are offloading what they see as risky assets at cheaper prices, even as trading conditions improve.
Bank of America (BAC.N) and U.S. hedge fund Davidson Kempner Capital Management were expected to buy the Lloyds' loans, one of the sources said. Another source added that the terms of the deal were being finalized.
Lloyds, Bank of America and Davidson Kempner all declined to comment.
Pricing on the deal was in the region of 80 percent of the value of the loans, one of the sources said.
"Lloyds are keen to get out of shipping and this deal is part of their efforts to speed up the process," another source said.
In February, finance and banking sources said Lloyds was looking to the sell the $500 million tranche as the state-backed bank cuts the size of its balance sheet to reduce risk.
The state-backed bank accelerated the run-down of its shipping portfolio last year and sold 2.7 billion pounds of loans, contributing to a 35 billion pound reduction in its non-core assets to 64 billion pounds.
Lloyds' sale of shipping loans last year left it with 965 million pounds ($1.63 billion) of net ship finance loans at the end of December, down from more than 7 billion pounds at the peak of the financial crisis.
Lloyds, its British rival Royal Bank of Scotland (RBS.L) and Germany's Commerzbank (CBKG.DE) and HSH HSH.UL are among major European banks seeking to sell shipping loans to investors including private equity funds.
Nordea (NDA.ST), the Nordic region's biggest bank by market value, remained committed to its ship finance business, the bank's chief executive Christian Clausen said.
Clausen said Nordea's shipping business was "super profitable".
"We never lost money on shipping during the crisis. We made money every quarter, although we had writedowns and losses. We have a huge shipping operation," Clausen said at the Reuters Financial Regulation Summit in London on Wednesday.
"We are fine. Those that made the mistakes lent money to individual ships," Clausen added.
(Additional reporting by Steve Slater, Editing by David Goodman and Elaine Hardcastle)