Britain could have sold the 6 percent stake in banking group Lloyds it placed with investment institutions nearly three times over, sources said, raising the prospect it could sell all its shares before the 2015 General Election.
The 3.2 billion pounds divestment, five years after Lloyds and rival Royal Bank of Scotland (RBS) were bailed out at the height of the credit crunch with a combined 66 billion pounds of taxpayers’ cash, represents a milestone in the economy’s recovery from the financial crisis.
The sale of the Lloyds stake has long been a priority for the Conservative-led coalition government, which sees the return of Lloyds to private ownership as an important step in its plan to recover taxpayers’ money.
“This is another step in the long journey in putting right what went so badly wrong in the British economy,” Finance Minister George Osborne said.
“It’s another step in repairing the banks, it’s another step in getting the money back for the taxpayer, and it’s another step in reducing our national debt,” Osborne added.
The shares were sold to unnamed investment institutions at 75 pence per share, a 3 percent discount to Lloyds’ closing price on Monday. Sources with direct knowledge of the transaction said it was 2.8 times covered by demand.
Given the level of investor appetite, said analyst Ian Gordon at Investec, the rest of the Lloyds shares could be sold by the next election. By comparison, the United States sold $31.8 billion worth of shares in Citigroup over a nine-month period in 2010.
“We regard the Government’s timing as impeccable and it appears credible to suggest that it could yet be out in full by the election,” Gordon said.
Paras Anand, head of European equities at Fidelity Worldwide Investment, said: “Today’s placing is a clear sign of confidence that the bank is well on the road to recovery.”
The sale of the 6 percent stake in Lloyds, carried out after Monday’s UK stock market close, comes two weeks before the Conservative annual conference and could allow Osborne to drive home the message that he is cleaning up the financial mess which they are keen to blame on the then-ruling Labour Party.
While polls forecast Labour will win a majority at the 2015 election, surveys show the Conservatives are more trusted by the public on handling the economy.
Mark Garnier, a Conservative lawmaker and ex investment banker who sits on the Treasury Select Committee – which examines the work of the finance ministry – also agreed a complete sale before the next election is possible.
LOT OF CONFIDENCE
“By selling these shares off now they’ve established benchmarks like where the price is and what the demand is like, and whether more can follow through. That gives a lot of confidence that the market is expecting and prepared to take down the Lloyds selloff,” Garnier said.
The Treasury has agreed not to sell any more shares in the bank for 90 days and bankers and investors don’t expect a second sale until after Lloyds publishes its 2012 results next March.
Osborne said the government will consider offering shares to retail investors when it offloads more of its remaining 32.7 percent stake. “This is the first in a multi-staged sale programme. I will consider all options for later sales of our shareholding in Lloyds, including a retail offering to the general public,” Osborne said in a letter to Andrew Tyrie, chairman of the Treasury Select Committee.
A sale of shares in RBS is seen as much further away, with the shares still trading at 28 percent below the government’s average buy-in price – meaning taxpayers are sitting on a loss of 13 billion pounds.
The outlook for RBS is further complicated by the government’s decision to hire investment bank Rothschild to examine whether the bank should be broken up. A decision is expected in the autumn.
The Lloyds sale is the biggest equity capital markets deal in Europe this year and the proceeds are also greater than the expected 2 billion to 3 billion pounds which Britain is expected to raise from the sale of Royal Mail.
Sources with direct knowledge of the transaction said the biggest block of investors were British, but there was also good demand from the United States, Asia and Europe, with investors seeing the stock as a play on the UK economic recovery.
The sale will reduce the government’s debt by 586 million pounds, as the shares were on its books at 61.2p, taking into account fees already repaid by Lloyds. The sale price was ahead of the government’s average buy-in price of 73.6 pence, meaning the government will make a profit of 61 million pounds.
Bank of America Merrill Lynch, JP Morgan Cazenove and UBS Investment Bank were joint book runners on the deal. Lazard acted as capital advisor. The Treasury did not pay any fees to advisors on the deal.
Shares in Lloyds were down 2 percent at 75.7p
daily alternative | alternative news – Lloyds share sale raises prospect of UK’s complete exit by 2015