UK bank stung by Australasia

BOS International refused last year to renew loans to Whitcoulls owner REDgroup. Photo / Dean Purcell

The British-owned bank that last year refused to renew its loans for the Whitcoulls and Borders chains has estimated it has more than A$4 billion ($5.5 billion) of impaired loans in Australia and New Zealand.

Latest accounts filed by BOS International with the Companies Office show its bad loans have almost doubled over the past year from A$2.2 billion in 2009, to A$4.2 billion in 2010.

Bad loans now make up a third of its total loans - up from 16 per cent in 2009.

As a result, the bank has recorded a pre-tax loss of around A$1 billion - even larger than its A$827 million loss in 2009.

The increase has prompted the bank's London-based chief executive, Eric Daniels, to admit he is "disappointed" with its performance in this part of the world.

The loss will inevitably lead to further speculation about the bank's future in Australasia.

BOS International used to be owned by HBOS Australia. It was bought by Lloyds at the height of the global financial crisis, but Lloyds itself had to be bailed out by the British Government, and is now 41 per cent owned by British taxpayers.

The bank has not disclosed how many of its bad loans are in New Zealand. However, in 2009 it revealed it had around $2 billion of loans in this country.

More than half of its loans for property investment were impaired at the end of last year, as were more than 60 per cent of its loans for property development.

At its peak, the bank employed about a dozen people in New Zealand, specialising in the risky end of the corporate market, including leveraged buyouts, acquisitions, and property and project finance.

Finance companies it is known to have loaned money to include Geneva and Strategic Finance, and buyouts it is believed to have been involved in include REDgroup, Noel Leeming, Qualcare, Tegel, MediaWorks, Metropolitan Glass, Ezibuy, Aperio, and Eldercare.

It also helped back two of the biggest property developments ever seen in New Zealand - the $1 billion Kawarau Falls Station development in Queenstown, and Pegasus Town north of Christchurch.

In the High Court at Auckland this week, a representative from the bank was watching insolvency proceedings involving property developer Nigel McKenna.

A court document revealed two McKenna companies owe BOS International more than $36 million, including $20 million for the Kawerau Falls development, and $16.6 million for Melview's Viaduct Harbour development.

Last year, BOS International refused to renew its loans to Australian private equity company Pacific Equity Partners for its investment in REDgroup, which in this country includes the Whitcoulls and Borders chains.

The decision forced PEP to put its own money into the company, but REDgroup continued to struggle and was last month placed in voluntary administration.

Another of BOS International's loans, to Australian private equity company Gresham, is believed to be due for renewal soon.

The loan relates to Gresham's investment in the Noel Leeming Group, which includes the Bond & Bond retail chain. According to accounts filed by Noel Leeming last year, it had about $75 million in loans which are due to be repaid by June.

While Daniels has stressed Lloyds' international loans make up only 4 per cent of its total assets, he has also noted they are "subject to very close management".

Across its entire international portfolio, 95 per cent of its "country risk" was in Australia and New Zealand, with the remainder in Asia, he told analysts last month.

BOS International insists it has sufficient support from Lloyds to ensure it is able to meet its liabilities in this part of the world for the foreseeable future.

It has played down further risks from the floods in Queensland and Victoria, and the Christchurch earthquake, saying it does not expect any significant losses "at a single credit level" as a result of the disasters.

Its accounts reveal it has a loan facility from its parent for A$17.2 billion which matures in 2020. At the end of last year, it had drawn down A$10.6 billion of that.

Last week, Lloyds announced plans to lay off 570 staff worldwide. Since 2008, it has slashed 26,000 jobs.