Lloyds share sale sparks Treasury rift as George Osborne ignores warning on value for money

Tim Wallace
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The chancellor is not only concerned with making a profit (Source: Getty)
The Treasury is in disagreement with its own advisers over the sale of shares in Lloyds Bank, as George Osborne seeks to fulfil his General Election pledge to sell a large chunk directly to retail investors.

The sale could prove popular, but would also mean selling the shares at a discount – reducing the profit from the deal, potentially by hundreds of millions of pounds.

UK Financial Investments (UKFI), the body created to oversee the government’s shares and to obtain good value for money in the sale, is believed to be against the retail sale, City A.M. understands.

Currently, the government is drip-feeding shares to the market, generating a healthy profit, as the current price of 89p is well above the 73.6p bailout price.

Over the past three-and-a-half months, six per cent of the bank has been sold in this manner for almost £3.5bn, reducing the government’s holding to 18.99 per cent.

“It would be much cleaner and neater if we didn’t have this retail offering,” said a source with knowledge of UKFI’s thinking.

The drip-feeding scheme has been extended by another six months.

“As with all disposals, delivering value for money for the taxpayer is a key consideration and shares will not be sold below the average price per share paid for them,” UKFI said, announcing the extension.

The shares sold so far have gone to institutions. Anyone can buy the stock on the open market, but the chancellor is keen to increase the range of shareholders in the bank.

Officials yesterday said the retail sale will take place in the next 12 months. It is thought to be most likely in early 2016, in the hope that Lloyds will publish strong financial results, increase its dividend payout and perhaps draw a line under the payment protection insurance mis-selling scandal.

But a retail offering would come with a five per cent discount to the market price. The retail sale’s scale is not yet clear, but it could be as large as eight per cent of the bank.

A discount could therefore be worth as much as £250m – a major loss for the taxpayer. Analysts believe the shares could still offer good value to buyers without a discount. Numis predicts the price will rise from 89p currently to above 100p in 2017.

Osborne yesterday described the trading scheme as “a huge success,” but aides noted he had previously said the aim of the sales is not only to raise money, but also to widen ownership.

Next up could be an RBS sale. Osborne may refer to this in his Mansion House speech next week.

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