Announcement after closure of stock exchange marks significant step in returning bailed out bank to private sector
The government on Monday began to sell off its stake in Lloyds Banking Group in a move that marks a significant step in returning the bailed out bank to the private sector five years after the financial crisis began.
The announcement was made just after the stock market closed when the banks advising the government started to approach major investors about buying chunks of the 4.2bn shares – currently valued at £3.3bn – being sold.
About 6% of shares in the group are being sold, which would reduce the government's stake from 38.7% to 32.7%.
The timing, in the midst of the Liberal Democrat party conference, means the Lloyds shares will be sold ahead of the £3bn privatisation of Royal Mail, although the size of the stake being sold is smaller than some City analysts had expected.
After conducting a daily analysis of the Lloyds' share price throughout the summer, UK Financial Investments (UKFI), the body set up to look after the stakes in the bailed out banks, advised George Osborne earlier on Monday afternoon that it is now time to kickstart the privatisation.
Osborne said on Monday night: "Five years ago the previous government used taxpayers' money to bail out the banks and I've been absolutely determined to get that money back for taxpayers so we can pay down debt. Today we have started to do that and it is another step in the long journey to repair what went so badly wrong in the British economy."
The exact price at which the shares are sold was expected to be announced on Tuesday, as the fifth anniversary approaches of the rescue of HBOS by Lloyds TSB to create the enlarged Lloyds Banking Group. The bank was eventually bailed out with £20bn of taxpayer money.
The government is expected to be able to claim it has made a profit – albeit a small one – on the sale which has been the subject of much speculation since the chancellor's Mansion House speech in June when he signalled preparations for the privatisation of Lloyds but played down the prospect of a quick sale of bailed out Royal Bank of Scotland.
In that speech, Osborne signalled that after a sale of Lloyds shares to major institutions, retail investors would be given the chance to buy shares. This option has not been ruled out, and the Policy Exchange thinktank is recommending a sale of the remaining stake through a mass distribution to taxpayers.
Since the speech, major investors have been sounded out by UKFI and its advisers about buying the shares and have already signalled their willingness to buy the stock, which has rallied sharply – in part helped by the government's housing schemes, which have bolstered the mortgage market.
"We want to get the best value for the taxpayer, maximise support for the economy and restore them to private ownership. The government will only conclude a sale if these objectives are met," a Treasury spokesman said.
But Chris Leslie, shadow financial secretary to the Treasury, said Osborne was continuing to duck "serious reform of our banking sector".
"It's vital that taxpayers get their money back and this must be the prime consideration in the sale of the government's stakes in the banks. And as Labour has consistently said any profits from the sale should be used to repay the national debt," Leslie said.
The shares closed on Monday night at 77.3p – above the 73.6p average price at which the government spent £20bn buying the stake. The shares are likely to be sold at a slight discount to that price but still higher than the average price at which they were bought and well above the 61p stated in the national accounts.
The 61p level represents the average price at which the shares were trading on the days the government bought the shares, rather than the actual price paid.
The government had already indicated it regards 61p as its benchmark for the sale and this is the price to which it has linked the £1.5m bonus of the chief executive of Lloyds, António Horta-Osório. He can receive his bonus if a third of its stake is sold above 61p.
Horta-Osório said the sale "reflects the hard work undertaken over the last two years to make Lloyds a safe and profitable bank that is focused on supporting the UK economy".
UKFI – which also announced that James Leigh-Pemberton, son of former Bank of England governor Robin Leigh-Pemberton, is to be its new boss – said it would not place any more shares for 90 days.
Paras Anand, head of European equities at Fidelity Worldwide Investment, said the placing was "a clear sign of confidence that the bank is well on the road to recovery".
RBS sale must wait
The launch of the Lloyds shares sale puts its prospects in stark contrast to those of Royal Bank of Scotland, the other financial institution rescued with taxpayer money.
While Lloyds embarks on its path back into private hands, a sale of RBS – which is 81%-owned by the taxpayer – is clearly further away. Its share price is still well below the level where taxpayers stepped in and George Osborne has commissioned a review by investment bankers at Rothschild into whether it should be broken up into a good bank and a bad bank.
The rescued bank's boss Stephen Hester resigned in June in a move intended to speed up a sell-off of the taxpayer stake, bought for £45bn in 2008 and 2009 to stop the Edinburgh-based bank collapsing.
RBS managementrs have said it could be ready for sale from the middle of 2014 – or even earlier. But the Rothschild review process delays any potential privatisation and the chancellor has said selling the government's stake is "some way off".
The results of the Rothschild review are expected later this month and in the meantime support for a split has been growing.Shares in RBS closed at 366.5p last night, a level that represents a £12bn loss on the money ploughed in by the taxpayer, at an average price of around 500p.
Article Source : http://www.guardian.co.uk
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