Osborne: Lloyds sale will target public next

Retail investors were barred from first float but are key to full nationalisation plan

Ordinary investors are set to be handed the chance to participate in the second round sell-off of Lloyds Banking Group shares.

It follows the Government's successful sale of a £3.2bn tranche of stock, representing 6 per cent of Lloyds shares and 15 per cent of the Government's stake.

Institutions have already warned the Government not to go too quickly with future sales, for fear of flooding the market with stock, which would depress the price for the new investors as well as longer-term holders.

However, bringing in retail investors could help. The Government's setting of 61p as the minimum price to secure a "profit" would also allow it to sell to them at a larger discount than the institutions, who paid 75p for their shares in Monday's placing, a discount of just 3 per cent to the 77.36p at which the shares closed on Monday night.

Lloyds shares are on the Government's books at 61p because that was the average price at which they were trading when the previous government bought in at 73.6p. The successful sale at 75p therefore technically cut the national debt by £586m, although the actual profit was just over £60m.

The markets sounded a cautionary note yesterday, with Lloyds shares closing trading down 2.71p at 74.65p, meaning the new investors were at a loss just hours after buying in.

The Government still holds nearly a third of Lloyds and such is the size of its stake that it has little choice but to proceed in stages. A single round of the staged sell-off could easily eclipse all past public privatisations, including the sales of British Gas and BT by the Thatcher government.

However, getting retail investors involved would greatly help with demand. Yesterday the Chancellor, George Osborne, wrote to Andrew Tyrie, the chairman of the Treasury Select Committee, to say that he was "considering options" for future sales including "a retail offering to the general public".

Despite the doubts in some parts of the City, the sell-off still drew a broadly positive response. Ian Gordon, an analyst at Investec, said: "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."

David Buik, a City commentator at stockbroker Panmure Gordon, said: "We understand that the shares were 2.8 per cent over-subscribed with many of them landing in US hands, which I found interesting. I suppose it is fair to say that fortunes have already been made on the recovery of US banks; so it's the UK's turn."

The Government is technically now barred from any further share sale for 90 days under a deal signed with the banks which acted as underwriters, although it could ask them to drop this.

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