John Feeney has a plan. Six months after his appointment as Lloyds Bank Commercial Banking global head of corporate real estate, proposals are in train for the bank to increasingly employ an originate-to-distribute model alongside its traditional model as a balance sheet lender.
The move is being undertaken against a backdrop of increasing competition and falling margins in the lending market, and will see one of the UK’s oldest retail banks move into territory that is traditionally the preserve of “racier” investment banks.
“There has been a certain amount of mystique around the investment banks, and a belief that what they do is in some way beyond the capacity of the commercial banks,” says Feeney.
However, he explains that Lloyds has been building what are effectively investment banking capabilities and is now in a position in which it can compete in terms of distribution.
He lists the bank’s commercial mortgage backed securities team, its “excellent” debt capital markets division, and its “really strong” loan syndication function.
Feeney says: “Our origination machine is going to be feeding lots of product in to our distribution functions, so they are going to have plenty to distribute, and that is potentially a very powerful combination.”
The Dublin-born banker says that over time the goal is to build to a position where about half of the origination undertaken by Lloyds in any given period goes out the door.
This year Lloyds’ commercial real estate business, which includes Feeney’s global corporates division – catering to clients with a turnover of more than £750m seeking loans of between £50m and £250m – is on record with the goal of lending £6bn to UK property by the end of the year.
Although Feeney will not provide a “running commentary” on what he call this “broad number”, he says he is “very happy with where we have got to with origination volumes, which have been heavier on the SME end and a little bit lighter on the larger-ticket deals”.
Looking to boost origination
And the aspiration is for this £6bn figure to rise in 2014, especially in global corporates- plus, where Feeney “is looking to increase origination volumes quite substantially”.
The 38-year-old joined the bank after around a year as head of real estate debt at Henderson, where he was charged with setting up the fund manager’s expansion into senior and mezzanine debt.
Prior to this he had been with Bank of America and later Bank of America Merrill Lynch for more than seven years including a period working out distressed real estate loans in Singapore, Tokyo and London.
But from his current position he can see the advantage that the Lloyds brand – although tarnished by the downturn – can be leveraged.
“Although it’s a little bit of a change in that we are going to be moving up the value chain and doing larger and more sophisticated transactions, we will be putting the Lloyds stamp of quality on them,” he says.
He goes on: “We think Lloyds’ reputation for credit and steadfastness and conservatism can be an advantage in the distribution market.”
This is not going to be the only point of difference with investment banks, which mostly use their balance sheets to simply “warehouse” finance before they sell it off.
Lloyds can also differentiate itself by the fact it is ready to anchor transactions by keeping a share of the debt on balance sheet.
Hold-and-distribute ratio
Feeney explains that the hold- and-distribute ratio will depend on the transaction.
“In some cases we are finding that investors are looking to take the whole transaction and may not wish for us to retain any piece, but more often than not we will be looking to have a significant anchoring investment – usually 20-30%, or sometimes more,” he says.
For development deals, the bank can generate an attractive enough return on capital, so it may not distribute any of it.
So how soon are we going to see a deal? The bank sold a few “small pieces” over the summer, and has a number in the pipeline, according to Feeney. It’s a case of watch this space.
Bridget.O’Connell@estatesgazette.com
