The starting gun on the privatisation of Britain’s state-backed banks was finally fired last night, nearly five years after the first multi-billion pound bailout.
Some 6 per cent of Lloyds Banking Group was sold to institutional investors at what is believed to have been a relatively tight discount to the 77.36p closing price on Monday night. At that closing price the sale would bring in £3.3bn.
During the bailouts the previous Labour government bought the shares at an average of 73.6p, but George Osborne, the Chancellor, has stated that he regards “break even” as 61p.
That is the average market price of the shares when the state bought in –the difference has already being added to the national debt.
“We want to get the best value for the taxpayer, maximise support for the economy and restore the banks to private ownership. The Government will only conclude a sale if these objectives are met,” a Treasury spokesman said.
Despite the sale only representing 6 per cent of Lloyds, it still represents a huge privatisation, bigger than the expected market value of Royal Mail.
However, even after the sale, which was announced after the stock market closed, taxpayers will still hold around a third of the shares.
Nonetheless, disposal will have a powerful symbolic value. The Government and the City are now at least in sight of the end of one of the sorriest episodes in the banking industry’s history, which has seen £66bn of taxpayer’s cash pumped into the industry as direct aid to keep Lloyds and Royal Bank of Scotland afloat, together with billions more in indirect support.
Some estimates have put the total at something close to £1trn. In contrast, the privatisation will represent a feather in the cap of Antonio Horta-Osorio, the Portuguese chief executive of Lloyds who has overseen a revival of the bank.
Up until now most of the news surrounding Lloyds has been dominated by the enforced spin off of TSB to create a new “challenger” bank, the price demanded by EU watchdogs for the aid Lloyds has received. Mr Horta-Osorio, said: “I am pleased that the Government has been able to begin the process of selling its stake, and giving taxpayers the opportunity to get their money back. I believe this 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.”
Matthew Fell, the CBI’s director for competitive markets, said: “The move to return Lloyds to the market is good news for investors and customers, and is testament to the successful recent management of the group.
“A Lloyds that can focus on serving the customer free from state ownership will help support the recovery.”
The sale will raise hopes that Lloyds will be able to resume paying dividends by the end of the year. To do this, the bank will need to negotiate the removal of the Government’s dividend blocker, which will likely involve a fee.
UKFI said it had agreed not to sell any more shares in the bank for 90 days. JP Morgan, Bank of America Merrill Lynch, and UBS handled the sale.