Lloyds and RBS: Planning for Europe's biggest privatisations

Treasury says the sale will be spread over several years in order to prevent a flooding of the market
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The Independent Online

Plans for Europe's biggest ever privatisations, the sale of the UK Government's stakes in Lloyds and Royal Bank of Scotland, are to be outlined tomorrow.

UK Financial Investments (UKFI), the agency that manages the stakes for the Treasury, will detail its options for a series of sales that will have to be spread over several years.

UKFI's chief executive, John Kingman, will set out details of the Treasury's current ownership of 43 per cent of Lloyds and 70 per cent of RBS. However, these holdings could rise even higher, as the banks issue shares to insure their bad loans with the Government.

UKFI will also describe possible exit routes for Northern Rock's and Bradford & Bingley's assets, even though it has yet to take over their management because EU officials have not approved the state aid they received.

The scale of the sales means UKFI will have to employ several different methods of disposal. Privatising Lloyds and RBS will be complicated because they are already quoted, unlike BT and other past privatisations. The agency will consider exchangeable bonds and share placings, as well as secondary offers.

Mr Kingman is also expected to say that, because the sales will be spread out, UKFI will also need to space out its offers to avoid clashes and to avoid flooding the market with banks shares.

It will seek to sell shares to overseas investors, but no decision has yet been taken on whether to repeat the "Tell Sid" campaign to sell British Gas shares directly to the public, with a big retail tranche of shares.

Northern Rock is likely to be sold in a trade sale, but it is not likely to be sold to an existing UK bank because ministers want to increase competition in banking. Tesco, the food retailer which is building up its own banking operation, is understood to be interested in buying Northern Rock as well as the Virgin group.

The Government has invested £50bn so far in Lloyds and RBS, but that could rise when Lloyds joins the asset protection scheme. At present, the state's stakes are worth £7.5bn and £14.3bn. The Treasury is hoping that, by waiting, it can recover its investment.

However, the Government is still in negotiations with the EU Competition Commissioner, Neelie Kroes, over which parts of Lloyds and RBS may have to be sold off under EU rules regarding state aid. Ms Kroes has told the Treasury that it will have to make structural changes to the two banks because they are anti-competitive in the retail and mortgage markets.

Meanwhile, a report by big four accountant Ernst & Young, revealed that there were 63 profit warnings issued by listed companies in the second quarter of 2009, a drop of 36 per cent on the same period last year. However, warnings in the support services sector rose from 12 to 17.