Lloyds share sale unleashed
THE Chancellor has pressed the start button on plans to whittle down the government’s stake in Lloyds before the General Election, in a move which could raise more than £3bn for the Treasury.
George Osborne announced the new strategy a day after Lloyds narrowly passed a key Bank of England ‘stress test’ gauging the strength of the biggest eight banks in the UK.
The move, which comes j ust months after Osborne ruled out a pre- election sell- off, was recommended by UK Financial Investments (UKFI), the arms-length body which manages taxpayers’ stakes in bailed-out banks.
Insiders said the stress test result sparked the decision to go ahead.
The six-month ‘trading plan’ will involve gradually selling off Lloyds shares under a process managed by US bank Morgan Stanley.
Although the US government has successfully used this tactic to
÷ GEORGE Osborne promised to stick to his austerity plan as he revealed that the final Budget before the General Election in May will be held on March 18. ‘Anyone expecting unaffordable pre-election giveaways will be disappointed because we will stay on course to prosperity,’ he said.
offload its stake in banking giant Citigroup and General Motors, this is the first time it has been adopted in the UK.
The Treasury stressed shares will not be sold below the average price of 73.6p the previous government paid when Lloyds was rescued by a £20bn bail-out from taxpayers.
The process, which could start in the next few days, will finish no later than June 2015.
George Osborne said: ‘I can confirm today that the government is taking the next step in returning Lloyds Banking Group to private ownership. The trading plan I’m initiating today is made possible by our long-term economic plan which is delivering a more secure and resilient economy.
‘It is another step in reducing our national debt and getting taxpayers’ money back.’
The government is not sure how many shares will be sold over the six-month period and at what price. But the process could reduce tax- payers’ stake from 24.9pc to under 20pc and raise around £3bn based on a share price of 75.6p.
This would take the total raised so far from the reprivatisation of Lloyds to well over £10bn so far.
Morgan Stanley has been given the power to decide when to sell off the shares, and how quickly.
But it has been instructed not to offload more than 15pc of the volume of Lloyds shares traded to ensure it does not flood the market and depress the share price.
Based on the 165m Lloyds shares traded over the last 12 months, and the 15pc limit on how much can be sold by Morgan Stanley, insiders have calculated that the government will offload around 5pc of Lloyds and raise roughly £3bn.
Both retail and institutional investors will be able to buy the shares through brokers in the normal way, but they will be oblivious to whether they are buying the new shares which are being sold by t he government.
Unlike with a typical sell-off, there will be no discount, with investors paying the market price.
It marks a radical change in strategy for the government which has previously reduced its stake from 40pc to 24.9pc in two big sales to institutional investors.
The decision to press ahead with reprivatisation at all is a surprise. The chancellor’s hopes of fully reprivatising Lloyds by the time of the May General Election have long been abandoned.
But over the summer he also ruled out the sale of a tranche of Lloyds shares to the general public amid the growing crisis in Ukraine and the Middle East, as well as the uncertainty over the referendum on Scottish independence.
The UKFI and the Treasury believe disposing of shares gradually is less risky.