The government is to resume the sell-off of its stake in Lloyds Banking Group over the next six months, potentially disposing of a further £3bn worth of shares in the run-up to the general election.
Chancellor George Osborne took the City by surprise when he announced the share sell-off just 24 hours after the 24% taxpayer-owned bank had scraped through Bank of England stress tests. The decision came as the chancellor began his evidence to the Treasury select committee of MPs on this month’s autumn statement.
“The trading plan I’m initiating today is made possible by our long-term economic plan which is delivering a more secure and resilient economy. It is another step in reducing our national debt and in getting taxpayers’ money back,” Osborne said.
The shares are to be drip fed into the market over the next six months in a different sales process to that used in the past. It could cut the taxpayer’s stake in Lloyds to 20%, less than half the 43% the government took after almost £20bn was pumped into the bank after the 2008 banking crisis.
The Lloyds shareholding has previously been sold off in two chunks but this time investment bank Morgan Stanley has been given a mandate that “no more than 15% of the aggregate total trading volume in the company is to be sold over the duration of the trading plan”. The US Treasury adopted a similar approach when selling its shares in Citigroup.
The latest announcement effectively places a floor of 73.6p on any sale of the shares and indicates that up to £3bn shares could be sold off in the next 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 that the previous government paid for them,” said UK Financial Investments, the body that looks after taxpayer stakes in bailed-out banks.
Lloyds was caught by surprise by the announcement which followed the results of stress tests from the Bank of England which had found the bailed-out bank needed more capital under a hypothetical scenario that included a 35% drop in house prices. Even so, the bank passed, which influenced the decision to resume the share sale.
Lloyds said: “We are pleased that the government has announced its intention to sell part of its remaining shareholding in Lloyds Banking Group and allow taxpayers to get more of their money back. This reflects the hard work undertaken over the last three years to make Lloyds a safe and profitable bank that is focused on supporting the UK economy.”
António Horta-Osório, the Lloyds boss, could receive a £1.7m share bonus if the taxpayer stake falls to around 16% or if the share price remains above 73.6p – the breakeven point of the bailout – for six months.
In August, the government abandoned plans to sell off shares before the election after George Osborne had raised the idea of selling shares directly to the public.
The disposal of the stake began in September 2013 when £3.2bn worth of shares were sold at 75p to institutional investors. In March 2014, a further £4.2bn tranche was sold at 75.5p.
UKFI said that, under this trading plan being run by Morgan Stanley, the investment bankers would have “full discretion to effect a measured and orderly sell down of shares in the company” on behalf of the Treasury.
“The number of shares sold under the trading plan will depend on market conditions, among other factors,” the government said.
The bank’s shares closed at 75.35p, down 1.9%.
No shares in Royal Bank of Scotland are yet to be sold.
