Cerberus Buys $20 Billion Loan Portfolio From Nationalized U.K. Banks -- 3rd Update

By Ian Walker 

The British government said Friday it is unloading a big portion of the assets it acquired in the financial crisis with the GBP13 billion ($19.93 billion) disposal of bank loans to private-equity firm Cerberus Capital Management L.P.

The transaction marks the biggest sale of financial assets by a European government, U.K. Chancellor George Osborne said in a statement.

The sale comes as Mr. Osborne is undertaking a wider push to privatize state-owned assets, selling down the stake in Royal Bank of Scotland PLC and nearing the sale of its remaining shares in Lloyds Banking Group PLC.

The portfolio of loans bought by Cerberus were taken on by the government after it nationalized Northern Rock and Bradford & Bingley, another midsize U.K. lender, in 2008. Northern Rock was the first English lender to suffer a bank run in 150 years in the credit squeeze in the fall of 2007. Both lenders were undone by their reliance on short-term funding.

U.K. Asset Resolution Ltd., which managed the assets from the nationalized banks on the government's behalf, said it sold the loans at GBP280 million more than book value and will repay EUR5.5 billion to the U.K. government following the deal.

Cerberus plans to manage the assets through UKAR's mortgage servicing arm, UKAR said. Cerberus has also agreed to sell GBP3.3 billion of the assets to U.K. lender TSB Bank PLC.

"The sale of this GBP13 billion loan book is a significant step in accelerating the repayment of our government loans," said U.K. Asset Resolution Chief Executive Richard Banks.

The transaction leaves the state-owned entity with assets of GBP73.5 billion, a 63% fall since its creation in 2010.

Low interest rates, rising property prices and an improving economic environment have boosted the value of the loans the U.K. government acquired via the bailouts of British banks. They have also attracted yield-hungry investors to the portfolios held by government-owned vehicles charged with getting rid of banks' unwanted loans, property and other assets.

"The vast majority of the customer base are paying their mortgages," said Mr. Banks. He said UKAR had no new immediate plans to sell further tranches of loans.

"This portfolio is an important addition for Cerberus and further demonstrates our commitment to our European mortgage and real-estate investment strategy," said Cerberus Chairman John Snow in a statement.

The government had appointed Swiss bank Credit Suisse in November last year to conduct a review of options to accelerate repayment of the government loans. Morgan Stanley advised Cerberus in the acquisition of the U.K. assets.

--Ian Walker contributed to this article

Write to Max Colchester at [e-mail]

(END) Dow Jones Newswires

November 13, 2015 05:25 ET (10:25 GMT)

Copyright (c) 2015 Dow Jones & Company, Inc.