News Analysis: RBS's £3bn loan book sale

The Royal Bank of Scotland is reportedly poised to sell up to £3bn in real estate loans as part of a wider project to “shed large chunks of its business” it “can no longer afford” according to a report by the Financial Times.

One of Europe’s largest lenders to real estate, the Royal Bank of Scotland, is expected to test the market’s resolve by putting up for sale a portfolio of real estate loans valued up to £3bn (€3.6 billion; $4.5 billion).

According to a report by the Financial Times, RBS, which is led by former British Land chief executive, Stephen Hester, has appointed Lazard to package up the loans into a state ready for sale.

The newspaper reported that the plan is in its early stages but if successful, RBS would seek to offload further loan portfolios. It is believed the bank is also considering selling real estate loans via listed vehicles or through securitisation.

The proposals to sell such a large volume of real estate loans forms part of a wider strategy by RBS to “shed large chunks of the business” that it “can no longer afford,” the FT said. They form part of a £258 billion non-core division created 18 months ago from which RBS hopes to raise significant funds.

Today's news of RBS’ plans will be the biggest test yet of whether a nationalised bank will be prepared to sell to a private equity firm.

But while the FT reported that stalwart names such as Blackstone and Lone Star would indeed by likely consider bids, there have been voices in the private equity real estate sector suggesting that the UK’s part-nationalised banks would not favour sales to such investors.

Dean Hodcroft, head of real estate, hospitality and construction for Europe, Middle East, India and Africa at financial services firm Ernst & Young, has been one voice to oppose such a position by the banks. He told PERE earlier this year: “Maybe it is the potential adverse public relations associated with private equity, or perhaps a combination of factors, but the current probability is that private equity may not get an invitation to the party.”

But he said: “The real estate problems the banks have are enormous. Just Lloyds and RBS alone amount to loans in excess of £180 billion.” He added that blocking private equity firms seemed “churlish” and would “an extra layer of complexity to the overwhelming scale of the challenge.”

A loan book of the scale of that reported by the FT would be the largest to come to market in the UK since the credit crunch, however RBS has sold assets in small quantities since.  Last December, for example, it sold 13 logistics properties to UK investment manager Rockspring Property Investment Managers for a reported £27 million.

On the sidelines of PERE’s European forum in London last month, rumours also surfaced of a €2 billion loan book in Spain to be sold by the bank. It is unclear at this stage whether this forms part of the loan book reported on by the FT.