Big investors may take all UK’s Lloyds stake

Tim Wallace
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INDIVIDUAL investors could be frozen out of the sale of the taxpayers’ stake in Lloyds as institutional investors prepare to buy up large chunks of the government’s holding at a premium, City A.M. understands.

Shares in the bank are now trading at 64.6p, firmly above the taxpayer’s break-even point of 61p, and investor interest appears to be growing as the lender recovers and becomes profitable once again.

It emerged over the weekend that a consortium led by former trade minister Lord Davies is considering investing up to £10bn in the bank, while Singapore’s sovereign wealth fund may put in £4.5bn.

That represents the majority of the government’s stake, which is currently valued at around £17.5bn.

Sources with knowledge of the situation believe offers of between 70p and 75p per share would be snapped up immediately by the government, representing a premium of up to 15 per cent on the current market value of the stock. Such a deal would value the government’s 39 per cent holding at around £20bn.

The divestment process is expected to begin with a sale of shares to existing investors in the bank, followed by a sale to institutions. Only after that would retail investors and savers potentially get a chance to put their money in. However if more institutions are interested in buying up shares right away then the whole stake may be gone before retail investors get a turn to buy into the government’s holding.

Analysts expect the big bids from institutions to help shore up the lender’s share price in the near term.

“Even though the share price is already elevated versus its fundamentals, there is potential here to reduce the negative technical drag that would ordinarily be associated with such a material disposal,” said Ian Gordon from Investec.

“That could well be taken positively.”

The Treasury is also thought to be wary of selling now only for the share price to shoot up in the coming years, representing a lost opportunity for the taxpayer and damaging the government politically. As a result it is believed to be looking at deals with institutions where they give the government extra payments over the coming years if the share price does continue to rise.

Such a structure has been common in attempts to sell chunks of Lloyds and RBS – the final price of branches they tried to sell to rival banks would only have been determined years down the line, depending on levels of profits after the sales. The Treasury and UK Financial Investments declined to comment, while Singapore state investor Temasek has denied approaching the British government about buying a £4.5bn stake.