Cazenove: ScotWids sales could create a £1.9bn loss for Lloyds

Lloyds is ‘unlikely’ to sell Scottish Widows, because disposal of the life insurance arm would generate a loss, but the firm could off-load the Clerical Medical brand, according to analyst Cazenove.

The analyst said that given that life companies are trading at a substantial discount to embedded value, ‘we would expect the sale to generate a loss in current market conditions’.

It said that a sale at a 30% discount to embedded value – around the same discount at which Friends Provident was valued in the Resolution deal – would result in a loss of £1.9 billion for the banking group.

Speculation has mounted over the next acquisition target for Clive Cowdery’s Resolution, with both Lloyds’ life assurance assets Clerical Medical and Scottish Widows in the frame.

Reports suggest that Cowdery is already in talks with Lloyds over Clerical Medical, but Cazenove said that the bank is likely to retain the stronger Scottish Widows brand.

‘While we believe the sale of Clerical Medical is likely, as the weaker brand in the IFA market compared to Scottish Widows, we regard the sale of the whole life and investment business in the current market conditions as improbable,’ the analyst said.

Yesterday it was reported that Lloyds was considering an initial public offering (IPO) of Scottish Widows to raise capital.

Lloyds share were up 4.62p (4.41%) to 109.32p.