Britain's Lloyds Banking Group has taken a £70 million (NZ$137.3 million) charge in its first-half year financial results as a result of the February 22 Christchurch earthquake and says asset values in its New Zealand real estate exposure continue to fall.
Lloyds, whose operations include the Bank of Scotland which loaned money to New Zealand property financiers such as Strategic Finance and private equity groups such as TV3's ultimate parent Australia's Ironbridge Capital, revealed the charge overnight in its results for the six months to June 30.
"In Australasia, although economic performance has been robust overall, the Group's portfolio has significant geographical and sector concentrations and these assets continue to be a concern. The Group also took a charge of £70 million in the first half of this year as a result of losses arising from the earthquake in New Zealand," Lloyds said.
Lloyds earthquake hit outweighs those faced by New Zealand's major banks. Westpac NZ CEO George Frazis said this week an A$32 million provision taken in the bank's half-year results would prove conservative given Westpac faced a loss of less than NZ$100,000 all up from the 950 houses it held mortgages over in the city's red zones. And ANZ, the country's biggest bank, has re-allocated existing collective provisioning to cover earthquake costs. Meanwhile, BNZ has provided for NZ$60 million of potential credit losses from the earthquake and Kiwibank expects losses of between NZ$10 million and NZ$45 million.
Bank of Scotland is owed NZ$76 million by defunct property financier Strategic Finance and recently waived a covenant breach by GFNZ Group, formerly Geneva Finance, on a loan facility that stood at NZ$23.2 million as of March 31. Bank of Scotland was also one of the major lenders to Ironbridge on its NZ$700 million plus leveraged buyout of TV3 owner MediaWorks in 2007. The business has since struggled with its heavy debt load.
Bank of Scotland is also believed to have recently sold its debt in Auckland-based private equity owned glass maker Metro GlassTech for 60 cents in the dollar after underwriting a NZ$322 million syndicated loan for Australian private equity group Catalyst Investment Managers NZ$366.2 million 2006 leveraged buyout.
Lloyds said its Australasian corporate and asset finance businesses would continue to be managed for maximum value whilst a tight focus was maintained on "running off the legacy commercial property exposures".
"Total impaired loans increased by £353 million, or 8%, to £4.540 billion compared with £4.187 billion at 31 December 2010."
The increase in impaired loans reflected further deterioration in the commercial real estate portfolio, Lloyds said, and the migration to impaired of "a material corporate exposure" which was partly offset by write offs.
"Total (Australian) impaired loans as a percentage of closing loans and advances increased to 35.2% from 28.7% at 31 December 2010 reflecting higher impaired loans and a high level of redemptions on the performing book. Impairment charges increased by £132 million to £586 million compared to the first half of 2010 but decreased by £322 million compared to the second half of 2010."
The group said impairment charges from Australasia on an annualised percentage of average loans and advances to customers increased to 8.8% from 6.3% in the first half of 2010 but decreased from 12.3% compared with the second half of 2010.
"Impairment on the Group's commercial real estate portfolio in Australasia was the main contributor to the half-year charge. This portfolio is heavily exposed to Australian non-metropolitan and New Zealand real estate markets where market conditions remain challenging and asset valuations continue to decline."
The British government bought a controlling stake in Lloyds in March 2009 and British taxpayers are currently sitting on a £7.8 billion paper loss on their £17.5 billion investment with Lloyds shares falling 10% to 34.99p overnight, not much more than half the government's break-even share price of 63.2p.
Overall, the Lloyds Banking Group posted a half-year loss before tax of £3.251 billion, or 3.4 pence per share, versus a profit of £1.296 billion, or earnings of 0.9p a share, in the same period of the previous year. The bottom line was savaged by a previously disclosed £3.2 billion provision for compensating customers who were mis-sold payment protection insurance and £1.8 billion worth of impairments in Ireland.