Investors have been sent into a frenzy by government plans to sell off its remaining shares in Lloyds Banking Group next spring. Since the news broke, 62,000 people have already registered for the chance to buy up shares at a discount. But fear not, there is plenty of time. Read on for our guide to the Lloyds share sale.
WHAT’S ALL THE FUSS?
The Labour government bought up 43 per cent of Lloyds Bank during the financial crisis, preventing its collapse. The Conservatives have slowly been offloading this stake, and the government currently owns around 12 per cent of the bank. Next spring it will sell down the rest. The date has not been set, as this depends on market conditions.
But the Lloyds sale is landmark for two reasons. First, because it shows the government believes the bank is ready to stand on its own two feet, without state support. Second, it will be the biggest privatisation in 20 years. It follows the sale of the Royal Mail last year, when the government was criticised for selling off the business too cheaply. Because Lloyds is already publicly listed, its shares have been valued by the market (at 77p each as of 6 October). This means it is not going to be mis-priced – although some will question the timing of the sale.
The shares will be sold at a 5 per cent discount to the market price at the time of the sale, and each saver will be able to buy up between £250 and £10,000 worth.
As another bonus, the government has said it will give one free share for every 10 bought – after the shares are held for a year. This offer will be capped at £200 for each investor.
HOW DOES IT WORK?
Anyone interested can register at www.gov.uk/lloydsshares/location. Applications can also be submitted by post. Shares will then be allocated on a lottery basis. The sell-off is likely to be oversubscribed but, crucially, savers with £1,000 or under will be given priority. This is to ensure fairness, so that people with larger amounts to invest don’t scoop up all the shares in the lottery, at the expense of those with much less.
Chancellor George Osborne said the sale, with its 5 per cent discount and prioritisation of smaller investors, is designed to “give something back” to ordinary people. “I don’t want all those shares to go to City institutions. I want them to go to members of the public,” he said.
ALREADY OWN LLOYDS SHARES?
The shares that are being offered are already in circulation, they are just owned by the government. So this share sale will not dilute the pool of shares. Given that the shares are being sold at a 5 per cent discount, there will likely be investors who buy in, wait a short time, and then sell out to lock in a profit. This means Lloyds’s share price could drop in the short term.
SHOULD I INVEST?
The government’s decision to offload its stake in the bank is likely to be greeted positively. Indeed, many UK fund managers have been talking up the merits of the listed banks, and are buying up shares in anticipation of greater dividends in future. Before the financial crisis, banks were among the biggest dividend payers in the market, and many investors hope they will return to their former glory. Many experts have been positive about the prospects for Lloyds.
“The dividends of Lloyds have recently been reintroduced and are expected to grow,” says Adrian Lowcock of Axa Wealth. “The bank would benefit from interest rate rises through its mortgage businesses, but is sensitive to a drop in growth in the UK.”