LLOYDS BANKING GROUP will lose an estimated £450m on Admiral Taverns, the pub giant, in what is believed to be one of the biggest write-offs it will be forced to take on a single investment.
The group's Bank of Scotland arm had lent more than £850m to Admiral, owner of more than 2,000 pubs, to finance a string of acquisitions. But because of the market downturn, pub values have been slashed. The estate is now thought to be worth less than £500m and the bank is sounding out potential buyers of its debt.
Admiral was founded in 2004 and was built up by the Landesberg and Rosenberg families, who specialise in investing in property.
They put a minimal amount of equity into the group and used the bank's money to fund its expansion. Bank of Scotland was reportedly repaid £110m from the disposal of 300 pubs in 2008, but that is the only return it has had.
The write-down is indicative of the balance-sheet losses at the country's biggest lenders. Many banks lent big sums to finance leveraged deals, but in today's climate, the assets they backed are worth a fraction of their former value.
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Admiral's first deal was the purchase of 85 sites from Enterprise Inns, an established tenanted pub group, for £63m in March 2004. Since then it has put together a stream of increasingly ambitious deals.
The string of acquisitions culminated in the 2007 purchase of 869 pubs from Punch Taverns, another rival, which is struggling with a mountain of debt.
Both the Landesbergs and the Rosenbergs tend to shun publicity, but they have some high-profile assets. For example, in 2005, they acquired the prestigious St James's Club in Mayfair. More recently, the Landesbergs acquired South Lakeland Holiday Parks, a caravan-park operator, in a deal financed by Irish Nationwide.
The pubs sector has been badly hit by the recession. The downturn in the economy has been the last straw for many publicans already reeling from the effects of the smoking ban, poor weather, rising beer duty and cut-price competition from the supermarkets.
Shares in the two largest quoted tenanted pub companies, Enterprise Inns and Punch Taverns, have fallen sharply over the past year. The former has dropped 66% while the latter has declined by 65%, although both stocks have rallied in recent weeks.
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Punch has been selling off pubs to raise cash. Last week, it sold a group of 11 sites to rival Greene King for about £30m.