British bank Lloyds has hired advisers for the possible sale of its Scottish Widows asset management arm, as it prepares for a likely regulatory demand to raise more capital, sources said. UK banks are having to consider further disposals after the Bank of England said they must raise a total of 25 billion pounds ($38 billion) of extra capital by the end of the year, to be in a position to absorb future loan losses.
Industry sources and analysts say Lloyds Banking Group Plc, heavily exposed to the UK housing market where prices have declined in some parts of the country and whose capital has been dented by the cost of compensating customers for mis-selling, is one of the banks facing a shortfall, which could be in the region of 3 billion pounds.
Lloyds has hired Deutsche Bank to advise on the possible sale, sources familiar with the matter said on Friday. But they stressed a formal sale process had not yet begun and that Scottish Widows' insurance business was not up for sale.
Lloyds and Deutsche Bank declined to comment. The bank's Scottish Widows Investment Partnership (SWIP), which provides asset management services to both internal and external clients, is a candidate for disposal because such businesses have been struggling to hold on to investors' cash as the popularity of passively managed alternatives has risen. SWIP had 141.7 billion pounds under management at the end of 2012.
"A decision to sell SWIP is likely to have been taken in response to the outcome of the recent FCA review into bank capital," said analyst Gary Greenwood at brokerage Shore Capital, referring to the newly established Financial Conduct Authority whose remit is to police the financial stability of Britain's banks. Greenwood said the sale would bolster Lloyds' capital position while having a limited impact on profitability.
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