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European banks 'set to sell mortgage debt'

US mortgage bonds are now helping European banks and governments repair their balance sheets and boost capital.

Bloomberg reports Lloyds Banking Group is auctioning $8.7 billion of mortgage debt in order to increase its capital.

This is not the first time a major European bank has made a move like this, as last month Lone Star Funds and Credit Suisse Group AG paid $8.7 billion for the assets taken over from Belgian bank Fortis.

Many European governments are looking for ways to increase capital after bailing out failed banks at the expense of the taxpayer.

Lloyds acquired billions of dollars of US residential mortgage-backed securities after it absorbed HBOS Plc, which was the UK’s biggest mortgage lender, in a government arranged takeover in 2009.

The bank held onto the assets during the housing slump and recovery and could now be looking to sell them on.

Lloyds said last week it wanted to shrink its balance sheet and sell assets to meet regulators’ demands for more capital rather than tapping shareholders.