Lloyds privatisation begins

 
Lloyds sign

So more or less on the anniversary of the collapse of Lehman Bros, which triggered the mother of all banking crises, the Treasury has begun the privatisation of one of the enormous banks rescued by taxpayers in the autumn of 2008.

Tonight the government is trying to sell 6% of Lloyds for around £3.3bn - which represents a bit under a sixth of our 39% stake in the bank.

Based on tonight's market price of Lloyds, of just over 77p, the Treasury should get back more or less the cash invested by taxpayers in Lloyds - which was 73.6p per share.

During the eurozone banking crisis of 2011-12, getting our money back looked an impossibility.

That said, we won't make a fat profit. And the National Audit Office will point out that when the cost of money is taken into account, taxpayers will make a loss.

There is one other important financial characteristic of this deal for the chancellor: it will show a "book" profit to the government of around £600m and will reduce the national debt by that amount.

The notional profit stems from what some would see as the eccentricities of how the government accounts are written, namely that the shares were included in the government books not at their cash price, but at the (lower) market price on the day of the purchase of shares being a legal reality.

However, for Lloyds, the big point is that it moves nearer to being back in the private sector. And even in this initial sale, many will say taxpayers will get their money back (at least in cash terms).

PS: These shares are all being offered to investment institutions. The next sale of Lloyds stock will also include an element aimed at retail investors.

UPDATE 20:35

My hunch is that the Treasury is likely to receive around 75p per share for the 6% of Lloyds it is selling - a small discount to the closing market price of 77.3p, and a slight premium to the cash price paid by taxpayers for the stake in 2008 and 2009.

Around 80% to 90% of the shares are likely to end up in the hands of British and American investment institutions, in a sale being conducted for the government by JP Morgan, UBS and Bank of America.

The potential buyers of the shares are being given a promise by the Treasury that it won't sell any more Lloyds shares for at least 90 days. Which means that part two of this privatisation cannot happen till the end of the year, at the very earliest.

As for when individuals can be expected to be offered shares in a retail offering comparable to Margaret Thatcher's "Tell Sid" privatisations, that cannot happen till after Lloyds publishes its annual report for 2013, to allow for the writing of a proper prospectus.

The annual report won't be available till February. Which implies that a share sale to millions of people can't and won't happen till some months into the new year, at the earliest.

 
Robert Peston, economics editor Article written by Robert Peston Robert Peston Economics editor

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  • rate this
    +1

    Comment number 114.

    #113 jeffa4444

    According to the occupational pensioners alliance, the so called devastating raid on pension funds carried out by GB amounted to 0.5% the same amount as they shell out in fees each year. Perhaps the £18.5 BN taken in pension holidays (stolen) and the over exposure to equities had more a profound effect.

  • rate this
    -2

    Comment number 113.

    Gordon Brown caused the crisis at Llyods Bank he encouraged them to purchase TSB. Mind you he stole from our pension funds, sold our gold cheap, sold British business cheap to foriegners and people want to vote Labour?

  • rate this
    -1

    Comment number 112.

    Ethicalism is unsure if this is a good deal for the public purse.
    Our pension contributions will have purchased these shares that by next April will have created huge bonuses for a few individuals and investment banks.
    Will those bonuses be taxed Chancellor? Or is this "you buy one you get a bonus free!"

  • rate this
    -2

    Comment number 111.

    Is this really a good news story? Can we trust the market makers to value our state finance assets correctly. If a bid came in for Lloyds tomorrow for a pound a share where would the price settle?
    Has the exchequer taken into account future revenue growth and profitability? After all that is what market makers will be doing.

    Really enjoyed you going shopping Rob!

  • rate this
    +1

    Comment number 110.

    @108, africamann opined:
    "A sound business decision would have been to hold the shares until Lloyds returns to full profitability"


    No, a sound business decision is to sell in tranches - some to provide a small profit, some maybe even a small loss, others to provide a greater return - so that the NET effect is not necessarily to make a profit (good though that would be), but to avoid a loss.

  • rate this
    0

    Comment number 109.

    Royal Mail, Lloyds Banking Group, possibly more.

    Anyone would think that the Chancellor was trying to build up a war chest to fund tax cuts to take effect from spring 2015.

    Is it really a surprise to note that the next general election will take place just as the impact of those cuts would begin to be felt by taxpayers.....?

  • rate this
    -3

    Comment number 108.

    As usual the government has proved that 'Those in power will always regard the citizenry as fools!!' A sound business decision would have been to hold the shares until Lloyds returns to full profitability after settling the ppi and other issues.
    But No!! sell now to their cronies in the banks and get some propaganda for the election. Well done Mr Osborne!!

  • rate this
    0

    Comment number 107.

    @105

    Surely Brown was merely carrying on where others left off. A 'light touch' approach to banking regulation which began under Thatcher allowed the banking sector to deploy unsustainable and highly risky business models. When it all hit the fan the house of cards came crashing down - or at least would have if the free market had not been bailed out by taxpayers. All politicians were culpable.

  • rate this
    -1

    Comment number 106.

    As the government sells off its ownership of a substantial part of British banking so it diminishes the potential control of the industry - not that they have made use of this opportunity for exemplary governance, customer service standards, strategic financing of industrial investment and more. Regulation is a poor second against ownership and control.

  • rate this
    0

    Comment number 105.

    101 Africamann

    'Gordon Brown never encouraged Lloyds rather he encouraged HBOS. If it wasnt for Lloyds HBOS would have gone under.'

    If it wasn't for Brown nothing would have gone under.

    He inherited a perfectly functioning economy and a perfectly functioning banking system and destroyed both.

    You'd have to go to Zimbabwe to find a more incompetently run economy between 2001 and 2008.

  • rate this
    0

    Comment number 104.

    @69.
    bigmouth strikes again


    Perhaps ILikeLadyGooGoo and vegraj could tell us what they think a fair price is and how long we should wait. Suspect that they have not thought that far ahead.

    Of course a fair price should include a return, but due diligence has to be taken as well, not a gung ho approach of pre 08 where banksters sold toxic debt as sound financial products. !!!

  • rate this
    +7

    Comment number 103.

    Having watched Panorama last night I've come to the conclusion that government ministers are not corrupt or unduly duplicitous. They are simply incompetent. I don't think they understand the departments they run and they certainly don't understand the economy. They are unwittingly manipulated by big business and occupy entrenched positions long after everyone else realises their mistake.

  • rate this
    0

    Comment number 102.

    It is a reasonable deal, not good from any direction but it does need to happen.
    Banks are still very precarious, certainly some of the big wall st banks are bankrupt if their assests are marked to current values.
    Lloyds is also splitting off TSB right now, again needs to happen.
    Banks still require a lot of reform, right now, since Cyprus, your money is safer in your mattress.

  • rate this
    0

    Comment number 101.

    @pietr8

    I agree with your comments on why should the institutional ivestors get ahead of the retail investor but, Gordon Brown never encouraged Lloyds rather he encouraged HBOS. If it wasnt for Lloyds HBOS would have gone under.

  • rate this
    +1

    Comment number 100.

    97 Matt

    'it's like paying 60p off on a loan of £1100'

    It's more like reducing our £1100 loan by £3.30.

    It's not going to change your life but it's a statement of intent. A step in the right direction.

    The govt should get the banks off the books as quickly as possible before some future govt is tempted to use them to make politically motivated loans.

    See how that worked out for the Co-op.

  • rate this
    -1

    Comment number 99.

    @86.
    John


    Financial journalits haven't said anything about the huge fees the bank paid the government for its support. In fact these fees have never been mentioned, why?

    Probably due to the fact that compared to the total bail out they are in comparison miniscule. !!!

  • rate this
    +4

    Comment number 98.

    Thank goodness the Government has at last begun the process of exiting from the banking sector where, because of what was called 'light regulation', it should never have been in the first place.
    There now needs to be a return to 'sanity' where savers are properly rewarded once more and 'borrowers' are required to pay back in real,as opposed to 'funny' money! ie We need to stop printing money!

  • rate this
    0

    Comment number 97.

    To put the £600m that will go towards paying down the national debt in context: it's like paying 60p off on a loan of £1100 that is increasing by around £100 a year.

  • rate this
    0

    Comment number 96.

    Lloyds used to pay about 34 pence a share as Dividends before 2008.

    If dividends had been paid at that rate between 2008 & 2013 Shareholders would have received about £1.70 per share.

    So we've sort of lost £1 per share.

    Take your pick who should get the credit for that.

  • rate this
    +2

    Comment number 95.

    93.John_from_Hendon

    'capitalism ONLY helping the uber rich & not the poor'

    I simply do not agree with that. If Capitalism 'ONLY' helped the 'uber rich' then there is no way it would have survived for so long.

    I agree that some are very good at exploiting it, but whilst it has its faults to suggest that it is only there for a small section of society is nonsense.

 

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