National Australia Bank will sell a £625 million parcel of largely non-performing loans from its UK Commercial Real Estate (CRE) portfolio to an affiliate of Cerberus Global Investors (Cerberus).
The transaction is a substantial de-risking of the portfolio, reducing the gross loans balance of the NAB UK CRE portfolio by 20 per cent to £2.38 billion as at 30 June 2014, and reducing gross impaired loans by 48 per cent.
The transaction will result in a small gain above net book value and will release an estimated £127 million of capital for the NAB Group when the transaction is settled.
The loans included in the sale are either in default, passed maturity or near maturity.
Following the transaction, provision coverage of impaired assets for the residual NAB UK CRE portfolio will increase from 51 per cent to 60 per cent. The ratio of total collective provisions to gross loans for the residual portfolio will increase from 5.5 per cent to 6.3 per cent.
Incoming NAB Group chief executive Andrew Thorburn said a focus on opportunities to accelerate the run-off in the NAB UK CRE portfolio had resulted in this transaction.
“We’ve progressively reduced our exposure to UK commercial property loans through organic run-off,” Mr Thorburn said.
“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,” he said.
Mr Thorburn noted that the bank’s broader UK operations still face some challenges, particularly in relation to conduct-related costs.
NAB and Cerberus will work together on a smooth transition for impacted customers, he said.
The transaction is not subject to regulatory or other external approvals and the assets will immediately be de-recognised from the NAB Group’s balance sheet.