Yorkshire Bank’s Australian owner has sold a £625m parcel of troublesome commercial property loans to a venture capital fund headed by a former vice president of the United States.
National Australia Bank said the transaction with Cerberus Global Investors, chaired by Dan Quayle, represents “a substantial de-risking” of the portfolio.
The deal reduces the balance of NAB’s UK commercial real estate book by 20 per cent to £2.3bn and shrinks the amount of impaired loans by 48 per cent.
Banks across the UK and Europe are selling non-performing commercial property loans to US private equity firms as they try to clean up their balance sheets following the financial crisis.
Funds that specialise in distressed debt tend to be much more aggressive in recovering their money than banks and are less concerned with preserving relationships or safeguarding businesses.
“Take your stereotypical Mayfair hedge funder and multiply it by 10,” said one industry expert.
NAB said it will work with Cerberus on a smooth transition for impacted customers.
Cerberus did not respond to calls for comment. The $25bn fund, based in New York, is said to be named after the three-headed hellhound of Greek mythology.
It is led by Stephen Feinberg and specialises in buying undervalued companies and distressed debt.
Critics describe such vehicles as “vulture funds”.
NAB is selling the portfolio following a process dubbed Project Chestnut that reportedly attracted the interest of Pimco, CarVal Investors and Oaktree Capital Management.
The transaction will result in a small net gain above net book value and will release an estimated £127m of capital for NAB when settled. The loans included in the sale are either in default, passed maturity or near maturity.
Andrew Thorburn, the incoming group chief executive, said a focus on opportunities to accelerate the run-off of NAB’s UK commercial property book had resulted in the sale.
“We’ve progressively reduced our exposure to UK commercial property loans through organic run-off,” said Mr Thorburn, who replaces Cameron Clyne as CEO on Friday.
“This sale represents a substantial de-risking of the non-performing portion of the NAB UK CRE portfolio.
“As we signalled at the interim results in May we continue to look at opportunities to optimise return on equity by accelerating the sale of non-core assets.
“While pleased with the acceleration of the run-off in the portfolio our broader UK operations still face some challenges, in particular in relation to conduct related costs.”
Yorkshire and Clydesdale banks have set aside at least £250m to date to compensate households and businesses for the mis-selling of useless or toxic products.
The banks transferred £5.6bn of commercial property loans to the balance sheet of parent NAB as part of a restructuring exercise in 2012. Many long-standing customers complained about their treatment, alleging that NAB pressurised them into repaying loans in full or sought revaluations of property with a view to invoking value-to-loan clauses.
NAB has not ruled out the sale of other parts of the remaining portfolio. A spokesman for Yorkshire Bank told The Yorkshire Post: “We continue to look at different options to reduce the portfolio and continue to work closely with customers as the book is run-off.”
J Danforth ‘Dan’ Quayle was US vice president from 1989 to 1993.
Hangover from boom time
Back in the boom years, UK banks were throwing money left, right and centre at commercial property.
That all changed when the global financial crisis brought lenders to the brink of collapse and left many financial institutions nursing huge amounts of bad and doubtful debts on their real estate loan books.
The clear-up exercise started some time ago, but still has a way to go.
Dan Butters, a partner at Deloitte, said the sale of NAB’s £625m portfolio to Cerberus is typical of the transactions in the current market place in the UK and across Europe.