* $4-5bln of shipping loans to be placed in bad bank -sources
* Shipping forms part of CEO's strategic review (Adds further comment, details)
By Jonathan Saul
LONDON, Nov 15 (Reuters) - Royal Bank of Scotland (RBS) is reviewing its shipping loan business and is expectedto place billions of dollars from the portfolio in thepart-nationalised group's new internal "bad bank", sourcesfamiliar with the matter said.
The industry sources said the group's shipping exposure isbeing examined as part of new Chief Executive Ross McEwan'sstrategic review, the results of which are due in February.
Shipping has weighed heavily on its financiers, with theindustry facing one of its worst downturns in decades. Shipowners ordered large numbers of new vessels between 2007 and2009, just as the global economy ran into its biggest crisissince the 1930s.
"A big chunk (of the shipping portfolio) will go into thebad bank and the intention is to sell it down as quickly aspossible," one source said.
"They will definitely also exit a number of relationships,even on performing loans. It will be a much smaller exposure fora much smaller bank. This is coming from outside of the shippingbusiness."
The sources said that an estimated $4 billion to $5 billionof shipping loans are expected to go into the bad bank, with thetotal shipping portfolio now standing at an estimated $16billion.
RBS declined to comment on its shipping business on Friday.
The bank, 81 percent owned by British taxpayers, said thismonth that it would create an internal "bad bank" to fence offits riskiest assets, part of a series of measures designed toheal its relationship with the government and speed its eventualprivatisation.
Trade sources this week said that RBS was in talks to sell ashipping loan worth close to $800 million.
Britain aims to offload its stakes in RBS and state-backedrival Lloyds Banking Group as soon as possible, havingpumped in a combined 66 billion pounds ($106 billion) to keepthe banks afloat during the 2008 financial crisis.
TOXIC ASSETS
Earlier this week, sources said that Lloyds had sold between$500 million and $550 million of shipping loans after divestinga separate $750 million tranche last year.
"RBS may try the Lloyds approach to selectively sell orpackage loans down the road - $500 million now, $500 million insix months - and get the best pricing, especially if the marketkeeps improving," another source said.
"Or they could select the most toxic assets in the bad bankand have a fire sale, get 20 percent on the dollar and take ahuge loss on a small part of the toxic stuff. That would helptheir overall ratios and buy some more time. It's a hugeportfolio and it would be very difficult to sell wholesale."
Several European banks including RBS and Lloyds are seekingdrastic reductions to their shipping loan portfolios as theyclean up their balance sheets to become less risky whileregulators demand that they hold more capital.
RBS had been among the top lenders to the sector, with itsshipping boss, Lambros Varnavides, one of the industry's mostinfluential players. Varnavides helped the bank to build aparticularly strong presence in the lucrative Greek market.
Several industry sources said Varnavides is expected toretire soon. RBS declined to comment.
"Lambros has been such a huge industry figure for so long.It is unclear who will be his successor or whether there will beanother separate head of shipping," a separate source said.($1 = 0.6215 British pounds)
(Additional reporting by Matt Scuffham; Editing by DavidGoodman)
Lloyds (LLOY)
