£250m loss for Lloyds in sale of Spanish division

Lloyds, 39 per cent owned by the Government since a bailout in the financial crisis, will get a 1.8 per cent stake in Sabadell, Spain’s fifth biggest bank, as part of the transaction.

The deal covers Lloyds’ private and retail banking business in Spain, but not the UK bank’s corporate banking operations in the country.

The sale will boost Lloyds’ capital ratio by reducing its risk-weighted assets – against which capital is measured – by £400m, a source with knowledge of the transaction said.

Many banks in Europe have been shedding businesses and assets to meet tough new capital rules brought in to make banks safer after the financial crisis.

The sale is also part of Lloyds’ plans to narrow its focus to Britain, where it is the largest retail bank.

Lloyds is cutting its international presence from around 30 countries. It has sold operations or exited from 12 countries in the last two years and has said it wants its presence to be down to less than 15 countries by 2014.

The loss in Spain adds to billions of pounds of losses Lloyds has faced in Ireland and Australia. These were mainly due to ill-timed expansion there by Halifax Bank of Scotland, which Lloyds bought in late 2008.

Lloyds’ Spanish business has total assets of £1.52bn, which consist mainly of retail mortgages and deposits, with a large proportion on non-resident clients. It has 28 offices plus a local investment management business.

“At face value it looks like a heavy loss on a small portfolio,” said Mike Trippitt at broker Numis.

But Mr Trippitt said the Spanish business lost 43m euros last year and that based on a net present value view of likely future losses and offsetting that with the risk-weighted asset reduction, all systems pointed to saying “press the button and get rid of it.”

Lloyds has also been trying to sell branches as required by European regulators after its taxpayer rescue. But plans to sell hundreds of branches in a proposed deal with the Co-op fell through last week. Lloyds now plans to spin them off.