Lloyds reprivatisation expected to raise over £3.2bn

The government is to begin the process of reprivatising Lloyds with plans to reduce its stake in the bank from 38.7 per cent.

A statement from the government agency managing the state's stake in Lloyds has given the green light to the chancellor to begin reprivatising state-backed bank Lloyds.

UK Financial Investments (UKFI) has given the nod shortly after the Office for Fair Trading said that TSB should be given more financial help by parent Lloyds.

Our banking reporter Tim Wallace said that decision was considered to be the final hurdle before the government can begin selling off its stake, as uncertainty over the potential cost of setting up TSB was eliminated.

Now six percent of Lloyds shares will be sold, reducing the government's stake from 38.7 per cent. That's 4,282,034,109 shares, with the sale to be managed by Bank of America Merrill Lynch, JPMorgan and UBS who will act as bookrunners.

The Wall Street Journal is reporting that the stake will raise over £3.2bn:

People familiar with the matter said the shares are being offered at 75 pence to 76 pence, and the U.K. treasury has orders from buyers for all the shares at that level. The shares closed Monday at 77 pence. At 75 pence a share, the sale would generate about £3.23 billion ($5.13 billion) for the U.K. Treasury.

(The Wall Street Journal)

Lloyds chief executive, Antonio Horta-Osorio, said:

I am pleased that the Government has been able to begin the process of selling its stake, and give 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.

The markets agree with Horta-Osorio, with shares in the bank significantly outperforming London's leading index, the FTSE 100, over the past year.

The Bank of America Merrill Lynch team includes Craig Coben, Oliver Holbourn and Arif Vohra. Holbourn will shortly be moving to UKFI, leaving in a month or two upon completion of the Royal Mail deal.

JP Morgan's unit will count vice chairman Tim Wise, co-head of UK Investment Banking Ina De, head of EMEA ECM syndicate Manuel Esteve and head of UK ECM Greg Chamberlain in its number.

Lazard & Co is acting as capital markets advisers, with Slaughter and May acting as Seller's Legal Counsel to UKFI.

US investment firm Fidelity Worldwide Investment, which holds a 2.45 per cent stake in the bank, has called the move a "clear sign of confidence".

Paras Anand, head of European Equities at Fidelity Worldwide Investment:

Under current management, the bank is a substantially less complex business, and is today centred around strong franchises in retail and corporate lending. The focus on selling non-core businesses as well as cost reduction has improved the bank’s capital position to a point that it could return to distributing dividends to shareholders in the medium term. Whilst we expect regulatory uncertainty to hang over the sector, Lloyds should be in a position to deliver a good level of shareholder returns looking forward.

A Treasury spokesperson said:

UK Financial Investments today advised the Chancellor it would be appropriate to begin the process to sell part of the Government’s shareholding in the Lloyds Banking Group. The Chancellor agrees with that advice and has authorised the process to begin.

The Chancellor set out the Government’s objectives for its shareholdings in the banks at the Mansion House speech earlier this year. We want to get the best value for the taxpayer, maximise support for the economy and restore them to private ownership. The Government will only conclude a sale if these objectives are met.

Chancellor of the exchequer, George Osborne said:

Five years ago the previous government used taxpayers’ money to bail out the banks and I’ve been absolutely determined to get that money back for taxpayers so we can pay down debt. Today we have started to do that and it is another step in the long journey to repair what went so badly wrong in the British economy.

Matthew Fell, CBI director for competitive markets:

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.

Joshua Raymond, chief market strategist, City Index:

The sale sets in motion the first step of the re-privatisation of banks rescued during the financial crisis. This is yet another important milestone on the road to recovery for the financial sector and Birtains economic recovery.

The stake sale announcement today also comes five years after the failure of Lehman brothers. As such, there is perhaps no better reference point for reflection as to just how far the UK banking sector has come since those dark days.