Two sides to the LDC story

This morning’s FT carries an article about Lloyds Banking Group potentially spinning out its successful private equity division, Lloyds TSB Development Capital (LDC). This is an interesting situation given the supposed ongoing anger of the general public at the banking industry as a whole, especially given that Lloyds is more than 40% owned by the British Government.

At this point there is no formal announcement of a deal; just a quote from LDC’s Chief Executive Darryl Eales reported by the FT referring to the fact that it will be “inconceivable that that we (sic LDC) won’t have third-party funds of some kind by 2013”.

This is not a new phenomenon. Since the beginning of 2008 there have been over 50 rumored sales of PE divisions or PE portfolios of larger financial intermediaries. These have included speculation of Barclays divesting via an MBO of its private equity division and RBS divesting its US and European portfolios. In addition to this there have been over $7bn worth of completed disposals of PE divisions or portfolios and some of the more high profile deals include Bank of America disposing of its America Capital Investors Business, HSBC divesting an 80% stake in its Asian private equity business to its managers and Citigroup’s sale of its alternative investments business earlier this year.

Private equity was an asset class that pre 2008 every significant financial institution wanted to be involved in. It was also an asset class that along with hedge funds was coming in for significant criticism from the regulators and the press prior to the sub-prime and credit crises.
The point which I believe is being forgotten here is that firms like LDC and Barclays Private Equity, and all the others, have made investments into significant numbers of companies over the last few years, the greater majority of which have proved to be successful and have helped drive economic growth around the world. Yes, there have been some high profile failed investments across the PE industry but there are many more that have been successful.

I understand completely that if you are a financial institution that is scrutinised more closely than ever by regulators and the general public because of partial or full government ownership then it could be considered to be an appropriate time to distance yourself from an asset class that once again is becoming high profile in the media, and yes I understand that it may be difficult for such institutions to provide their in-house PE organisations with the same level of access to on-balance-sheet funds. 

Given the successful returns that LDC has made for Lloyds over the last few years, isn’t there an argument, from our perspective as tax payers, that anything that helps these nationalised institutions return themselves to private ownership and remove the burden from the British government is a good thing?

Filed under: PE, politics, regulation, UK, government