Cerberus Capital buys £2.3-bn distressed loans of top UK, Australian banks

US private equity firm Cerberus Capital Management LP has bought two high-risk real estate portfolios from the National Bank of Australia (NAB) and the Royal Bank of Scotland (RBS) for approximately £2.3 billion ($3.6 billion), aiming to bet on long-term prospects of UK and Irish commercial property markets.

 
(Cerberus Capital) Logo of New York, US-based PE firm Cerberus Capital Management LLP  

The deal includes UK commercial property loans worth £1.2 billion from NAB and Irish commercial real estate loans worth £1.1 billion from RBS.

New York-based Cerberus is one of the world's leading private investment firms dedicated to distressed investments.  The firm has about $25 billion of assets under its management, invested across distressed securities and assets, private equity, corporate lending and real estate investments.

NAB, one of Australia's biggest four lenders, has long sought to pull out form the UK and the US financial markets where it expanded its operations before the 2008 financial crisis.

NAB's sale follows its previous offloading of £625 million bad loans to Cerberus in July.

The bank's chief executive Andrew Thorburn said, ''This is an important step forward, effectively bringing closure to one of our legacy positions.''

''The sale is another important milestone in our strategy of reducing our low returning legacy assets and sharpening our focus on our core Australian and New Zealand franchises,'' Thorburn further stated.

Further to the sale, NAB's balance of its UK commercial real estate portfolio will be reduced to £836 million, compared to the original balance of £5.6 billion in October 2012 when the portfolio was first established for disposal.

''The remaining UK commercial property loans are largely strong performing loans and we will look at other options to manage this small remaining portfolio,'' Thorburn said.

The RBS portfolio comprises over 5,000 commercial properties including office complexes, shops, restaurants and industrial establishments in Republic of Ireland and Northern Ireland, which were badly hit by the property price crash following the global financial crisis.

RBS announced the sale soon after it said that the bank has passed the stress test conducted by the Bank of England by strengthening its capital ratios reducing higher risk exposures.

RBS chief financial officer Ewen Stevenson said that the bank is on track to reach tier 1 capital ratio of 11 per cent by 2015 and at least 12 per cent by end 2016, which is currently at around 5.2 per cent.

According to RBS, the carrying value of the property loans was about £1 billion, but the value of the gross assets was close to £4.8 billion. The portfolio generated a loss of £800 million last year.

The transactions are expected to complete in the first quarter of 2015.