Lloyds Banking Group has announced a pair of sales that will help the bank come into compliance with capital requirements set by the Prudential Regulation Authority, spokesman Ross Keany told Private Debt Investor.
The bank sold German insurance provider Heidelberger Leben to Cinven and Hanover Re for €300 million. The bank also sold a portfolio of loan assets to a Goldman Sachs affiliate for £254 million (€298 million; $398 million). The portfolio, which is valued at £283 million, generated £11 million in profits over the last calendar year, according to a Dow Jones report.
“The rationale of this disposal is, we’re reducing our international profile. We want to be a UK bank,” said Keany of the Heidelberger sale. “By selling this business, it allows us to focus on our UK businesses.”
Keany added that the sale of Heidelberger Leben would improve the bank’s tier one capital by 13 basis points or £400 million. The bank is not disclosing the tier one impact of the loan portfolio sale to Goldman Sachs affiliate ELQ, although Keany added: “It will be a small tier one increase for the group.”
Regulators informed the bank of its need to raise tier one capital in June, according to reports. Common equity tier one capital provides protection against unexpected losses, such as those experienced by banks during the financial crisis.
Cinven had already had its eye on German insurer Heidelberger Leben two years ago, when Lloyds first tried to sell it, Caspar Berendsen, a partner at Cinven, told sister publication Private Equity International.
“At that point, their [auction] process didn’t lead to anything for various reasons. At that time, we were also buying Guardian [Financial Services] so it was very difficult for us to buy both businesses at the same time,” he said. However, Cinven recently went back to Lloyds and entered into exclusive talks, completing the deal in approximately four months, he added.
The deal has much in common with Cinven’s investment in Guardian Financial Services, a UK provider of life and pension products, which it acquired in November 2011, Berendsen said. “In the last two years [Guardian] has been extremely successful. From our perspective it is easier to copy a successful investment than to find a totally new story,” Berendsen said.
The most attractive market to do that in was Germany, he said. “It’s a very large market and it’s very fragmented. We are also seeing regulatory issues coming into play so a lot of people [are] disposing of life insurance businesses. Heidelberger is the ideal starting point to create this consolidation company in Germany.”
Cinven also recently floated Partnership on the London Stock Exchange, which generated a total return of more than 8x.
The investment in Heidelberger Leben was made from Cinven’s Fifth Fund, a €5.3 billion vehicle which closed in June. The vehicle is understood to be nearly 30 percent deployed.
Yolanda Bobeldijk contributed to this report.