Lloyds Banking Group was chasing debts and investments of more than £700 million yesterday after a Scots property developer it had nurtured and funded for eight years collapsed.
Administrators at Grant Thornton were appointed to salvage what they can of the Kenmore Property Group, a £1.8 billion collection of funds and companies in which John Kennedy, who was once hailed as one of Scotland’s wealthiest men, is the main shareholder.
Debts owed by Kenmore are part of the estimated £70 billion commercial property loanbook that Lloyds, in which the taxpayer has a 43 per cent stake, inherited from HBOS when it took over the bank last year.
HBOS is understood to have pumped at least £700 million in loans and equity investments into Kenmore and its funds, leaving the Edinburgh-based group nursing potentially huge losses after steep falls of 45 per cent in commercial property values. The bank declined to comment last night.
HBOS’s former commercial loans chief Peter Cummings is said to have been close to John Kennedy, the 58-year old founder of Kenmore, which was battered by the collapse of Lehman Brothers, an investor in three of its eight funds.
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One of Mr Cummings’s last moves before being ousted from HBOS last December was to agree a further rescue payment of £67 million to keep the Kenmore empire afloat.
Lloyds continued that emergency funding yesterday, agreeing new money to allow the administrators to keep running the business as a going concern to avoid a fire sale of assets.
The collapse is a dramatic reversal for Mr Kennedy, the son of an Ayrshire farmer, whose swashbuckling property deals propelled him to a £105 million fortune, including a private jet, yacht and Pentland Hills retreat, by last year, according to The Sunday Times Rich List.
Mr Cummings is said to have been a major cheerleader for Mr Kennedy, providing several injections of finance since 2001, into both the group and its funds. Mr Kennedy once likened tapping the banks to “discovering the overdrive switch on a 15-year-old car”. Mr Cummings, once heralded by some as a banker with the golden touch, is now blamed for flushing away billions of pounds of the bank’s money into property-backed ventures that later failed.
Yesterday’s announcement is a sign that Lloyds is beginning to grapple with the enormous property portfolio it now effectively owns and take action where companies are in breach of covenants and have no hope of meeting repayments.
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Separately, the Financial Services Authority is investigating whether HBOS misled investors in the prospectuses for its two capital-raisings last year, in particular over information about impairments in the corporate loan book. The sheer scale of the write-offs in the corporate book emerged only later after Lloyds took over the business.
Kenmore assets in the 21 companies now in the hands of Grant Thornton are mostly regional office blocks and industrial properties in towns including Leeds, Manchester, Middlesbrough and Plymouth. Kenmore has a further £1.5 billion development pipeline committed to schemes including the Jumeirah village in Dubai, as well as properties in Abu Dhabi and Doha. Many of its development projects have been halted.