UK: Lloyds Banking Group boosts balance sheet with £3.3bn US mortgage bonds deals

The head office of Lloyds Banking Group in London

The head office of Lloyds Banking Group in London - Credit: PA

Taxpayer-backed Lloyds Banking Group has struck deals worth £3.3billion to sell US mortgage bonds to beef up its balance sheet.

The lender, which is 39% owned by the state, said the sale would boost its capital reserves by £1.4bn, a move which comes as UK banks are under pressure from regulators to build up cushions against future financial crises.

The Bank of England’s Financial Policy Comittee recently told banks they had to plug a £25bn capital shortfall.

Lloyds said it was making a £540m profit on the sale of its US mortgage-backed securities, while its pension fund was also making a £360m gain from selling its stake of the portfolio and will use the cash to reduce its funding gap.

It inherited the bonds when it rescued Halifax Bank of Scotland at the height of the financial crisis.


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The deal marks a turnaround in appetite for US mortgage-backed securities, the highly controversial products, which were widely blamed for the global banking meltdown five years ago.

Banks worldwide were forced to take hefty bad debt losses as they wrote down the values of their US mortgage bond portfolios.

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But demand for sub-prime mortgage debt has improved significantly in recent months thanks to a recovery in the US housing market.

Today’s deal marks the latest in a series of sell-offs by Lloyds as it seeks to increase its capital reserves and refocus on its core business.

The group recently sold-down its stake in wealth manager St James’s Place by another 15% and earlier this week announced the sale of most of its international private banking business to Union Bancaire Privee, of Switzerland.

Lloyds and fellow part-nationalised player Royal Bank of Scotland have been given the all clear by financial regulators to meet capital shortfalls and confirmed last week that they would not have to tap investors for extra cash to bolster reserves.

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