Lloyds On Hook For External Bank Loans
Risk exposure a cause for concern.
My firm, Investment Management Associates, sold Lloyds TSB Group (LYG) a couple of weeks ago. I still think it's one of the best run banks in the world, but its exposure to loans underwritten by other banks gave us pause and forced us to rethink our thesis.
Lloyds has a securitization conduit called Cancara it uses to securitize some of the loans it generates. No problem there. The company has proven very conservative in its underwriting and that's why it sports a very rare AAA rating by Standard & Poor's.
However, approximately two thirds of the $25 billion held in Cancara are loans that have been generated by other banks.
For a fee, Lloyds allowed other banks to fold their loans into Cancara and insured those loans with its own balance sheet. Call me paranoid, but with Lloyds on the hook, other banks have little incentive to care about the quality of the loans.
This was my firm's reasoning for selling the company I praised for a very long time. Again, there's a good chance this may end up being nothing. We'll monitor the performance of Cancara loans for a while and may buy it back at some point in the future.
The information on this website solely reflects the analysis of or opinion about the performance of securities and financial markets by the writers whose articles appear on the site. The views expressed by the writers are not necessarily the views of Minyanville Media, Inc. or members of its management. Nothing contained on the website is intended to constitute a recommendation or advice addressed to an individual investor or category of investors to purchase, sell or hold any security, or to take any action with respect to the prospective movement of the securities markets or to solicit the purchase or sale of any security. Any investment decisions must be made by the reader either individually or in consultation with his or her investment professional. Minyanville writers and staff may trade or hold positions in securities that are discussed in articles appearing on the website. Writers of articles are required to disclose whether they have a position in any stock or fund discussed in an article, but are not permitted to disclose the size or direction of the position. Nothing on this website is intended to solicit business of any kind for a writer's business or fund. Minyanville management and staff as well as contributing writers will not respond to emails or other communications requesting investment advice.
Copyright 2011 Minyanville Media, Inc. All Rights Reserved.
Daily Recap Newsletter