Lloyds forced companies into loan defaults, claims report

The Times James Hurley Enterprise Editor

Published at 12:01AM, July 13 2015

Lloyds has been accused of unduly influencing property valuations to “engineer defaults” of smaller companies in an attempt to clean up its balance sheet.The bank is facing claims that it “downvalued” commercial property to put its business customers in breach of the loan-to-value ratios on their secured debts. This could result in a default on loans and allegedly allowed Lloyds to exit lending positions it no longer deemed commercially attractive in the wake of the financial crisis. The allegations, which Lloyds has vigorously denied and has called “baseless”, appear in a report on small business banking relationships being published today by Berg, a Manchester-based law firm. The Times has seen correspondence from the Serious Fraud Office which shows that the crime-fighting agency has been looking into similar claims about the bank. In its report, Berg suggests that, contrary to what the bank claimed when faced with previous allegations that it pushed some business customers towards default, it did have a “real motivation” to do so, namely to strengthen its balance sheet. Lloyds has said that allegations that it devalued its customers’ security do not make sense because it would be eroding its own position at the same time. However, Berg claims the “bank is in a better position if the loan defaults” under certain circumstances. This, it says, is because of the amount of capital that lenders have to set aside against high-risk small business loans under Basel III regulations, which were implemented to avoid a repeat of the financial crisis. The report claims that Lloyds could reduce the amount of capital tied up in this way by exiting certain business loans. A spokesman for Lloyds said that Berg’s claims did not make “commercial sense . . . It is always in the bank’s interest to get the maximum price possible and is aligned to the customer’s best interests, not least because this will help us reduce losses. We would not benefit in any way from falsifying values.“ Last year, the SFO was alerted to similar allegations of “down-valuation” by politicians after Kashif Shabir and Alun Richards, two Lloyds business customers, raised concerns about Lloyds’ relationships with third-party property companies, which are commissioned to conduct valuations of properties customers’ loans are secured against. The Times understands that the organisation is considering the claims as part of its broader interest in the conduct of high street lenders’ restructuring units, although there is no suggestion that a formal investigation has been launched. A Lloyds spokesman said: “We do not engineer defaults in order to manage our balance sheet. We recognise impaired loans on our balance sheet and calculate regulatory capital appropriately. Assets are only written off after an extensive review process has been completed; we disclose our policy for doing so in our accounts.”

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