Lloyds Share News (LLOY)

By Anita Likus Of DOW JONES NEWSWIRES LONDON (Dow Jones)--While U.K. banks are still seeking to reduce their commercial property loan books, industry experts aren't holding their breath for waves of property disposals and urged potential buyers to be patient. Speaking at Savills PLC's (SVS.LN) annual financing conference Wednesday, head of commercial valuation William Newsom said that Royal Bank of Scotland Group PLC (RBS) and Lloyds Banking Group PLC (LLOY.LN) still aim to deleverage their balance sheets. But industry experts say that banks will need five to 10 years to assess their commercial property loans and decide what to do with them, including accepting defaults and sales, refinancing or extending loans, or taking on joint venture partners to share risk. According to Newsom, banks are under pressure to clean up their loan books, but the cost of unwinding existing fixed-interest instruments, known as swaps, is preventing a flood of property being released onto the market. Experts agree that the U.K. market will not see banks selling a slew of distressed assets any time soon. "They can't just get on and do it," said Eurohypo AG (EHY-XE) Managing Director Max Sinclair, adding that the losses would be too big, so banks still need time to make profits and raise equity to offset property-related losses in the future. He urged buyers to wait to acquire property from banks as more distressed assets will be put up for sale. Because some 53% of total loan books, or GBP120.7 billion, are due to mature between 2010 and 2012, according to data published by De Montfort University, Savills forecasts that lenders will continue to focus on restructuring loans with core customers and refinancing where possible. Industry experts still see Lloyds, RBS, and the Irish National Asset Management Agency--equivalent of the U.K.'s Asset Protection Scheme--as crucial to the property lending market because they represent about 50% of loans. While both Lloyds and RBS are refinancing and will focus on core customers, according to Savills, RBS, which is backed by the APS, is inviting some existing customers to refinance elsewhere while it seeks to lend to new customers. Newsom said that the RBS response was "the bank has identified core assets and non-core assets," and that it is seeking to deleverage its balance sheet while improving the quality of its portfolio. That was confirmed by a spokesman for RBS. Lloyds didn't return calls. Industry experts at a conference Tuesday organized by the British Property Federation doubted that the two major lenders even have the knowledge of what loans they have on their balance sheets. Peter Clarke, executive officer at the U.K.'s second-largest real-estate investment trust British Land Co. PLC (BLND.LN), who last year spent a few months at Lloyds helping to work out its loans, said "they've got a pretty good handle on what they've got ... whether they have a handle on solutions, I don't know." Additionally, while some suggested that banks are waiting for property values to rise again, having fallen some 45% peak-to-trough between 2007 and 2009, causing breaches to loan-to-value covenants, they may be under threat again given the contagion from the euro zone and the uncertainty in the U.K. market due to unidentified public spending cuts, which will hurt consumer confidence. "There is a clear change in sentiment over the last six weeks, since the bailout of Greece," said Savills' Newsom, adding "there is more nervousness among lenders." -By Anita Likus, Dow Jones Newswires; +44 20 7842 9407; anita.likus@dowjones.com (END) Dow Jones Newswires June 09, 2010 11:24 ET (15:24 GMT)