Lloyds has taken a £250m sterling loss on a sale of its unprofitable Spanish banking business to Banco Sabadell, a deal that will help bolster the British bank's capital.
Lloyd's, 39% owned by the British government since a bailout in the financial crisis, will get a 1.8% stake in Sabadell, Spain's fifth biggest bank, as part of the transaction.
The deal covers Lloyds' private and retail banking business in Spain, but not the British bank's corporate banking operations in the country.
The sale will boost Lloyds' capital ratio by reducing its risk-weighted assets - against which capital is measured - by £400m, a source with knowledge of the transaction said.
Many banks in Europe have been shedding businesses and assets to meet tough new capital rules brought in to make banks safer after the financial crisis. The sale is also part of Lloyds' plans to narrow its focus to Britain, where it is the largest retail bank.
Lloyds is cutting its international presence from around 30 countries. It has sold operations or exited from 12 countries in the last two years and has said it wants its presence to be down to less than 15 countries by 2014.
The loss in Spain adds to billions of pounds of losses Lloyds has faced in Ireland and Australia. These were mainly due to ill-timed expansion there by HBOS, the British bank Lloyds bought in late 2008.
Lloyds' Spanish business has total assets of €1.52 billion, which consist mainly of retail mortgages and deposits, with a large proportion on non-resident clients. It has 28 offices plus a local investment management business.
Analysts said that the Spanish business lost €43m last year and that based on a net present value view of likely future losses and offsetting that with the risk-weighted asset reduction, all systems pointed to saying "press the button and get rid of it."
Lloyds has also been trying to sell branches in Britain as required by European regulators after its government rescue. But plans to sell hundreds of branches in a proposed deal with the Co-op fell through last week. Lloyds now plans to spin them off.
Lloyds said it planned to be "a supportive shareholder" of Sabadell and would keep the shares for at least two years.
Lloyds will report its first quarter results tomorrow. The bank is expected to name Central Bank deputy governor Matthew Elderfield as its new head of compliance later this week.
Mr Elderfield announced earlier this month that he will step down from the Central Bank in six months time.
The move echoes the recent decision by Barclays to appoint Hector Sants, the former chief executive of Britain's Financial Services Authority, to a new global role heading compliance and regulatory affairs. HSBC has also created new high-level compliance and regulatory affairs posts.
