Lloyds is withdrawing from its heavily lossmaking Irish operation, which had £19.7bn of net exposure at its peak in 2010. That contrasts with Royal Bank of Scotland, which recently decided to keep its Ulster Bank subsidiary, despite having lost about £15bn in Ireland since the financial crisis.
The Lloyds deal, codenamed Project Parasol, was agreed for a purchase price of slightly less than half of the face value of the underlying assets, according to people familiar with the situation. Lloyds and Goldman declined to comment.
The portfolio is made up of both buy-to-let residential mortgages and commercial mortgages, including for offices, retail properties and industrial sites.
The sale, agreed over the weekend, leaves Lloyds with only £1bn of net exposure to Irish non-performing loans. It also has about £5bn of performing Irish mortgages left in its non-core division, which is being steadily wound down.
The deal follows the sale by Lloyds of an £870m portfolio of Irish residential home loans to Lone Star of the US at the end of October.
One private equity executive specialising in distressed mortgage investments said the market for such deals was booming. Activity is being fuelled both by greater competition for deals between the mostly US funds that have arrived in the UK and by the greater willingness of banks to provide financing for such transactions.
“There are a lot of funds coming into this market from the US, where this has already happened,” he said, citing the likes of Apollo Global Management, Lone Star, Oaktree, Centerbridge, Cerberus and Fortress.
The private equity executive said the average purchase of an Irish distressed mortgage portfolio two years ago would have been financed with debt equivalent to half the value of the deal and cost 400-425 basis points over Libor.
Now, he said it was possible to finance similar deals with 70 per cent debt, costing only 300-275 basis points over Libor. A lower cost of financing and increased debt levels mean that investors can offer higher prices for mortgage portfolios.
“This is a positive development for banks with large non-core mortgage pools,” said the private equity executive. “The aggressiveness of banks and others to lend on these portfolios has changed dramatically in the last 12-18 months.”
The likes of JPMorgan, Goldman, Wells Fargo, Deutsche Bank and Credit Suisse are among the most active banks in providing such financing, he added. Some of the investment banks have also been snapping up mortgage portfolios themselves.