TSB made its stock market debut this morning (albeit under conditional trading). It must have been a nervous time at TSB HQ: recent IPOs have been less than popular. That said, this is one of the most talked-about flotations in recent times – not least because TSB is being sold off as a condition of Lloyds’ bailout in 2008. Here’s what you need to know.
1. Selling a larger stake now will make it easier for Lloyds to sell it off entirely by the end of 2015
Everyone's talking about Lloyds' surprise decision to sell off 38.5% of its stake in the bank rather than 25% - but it seems pretty sensible, considering that under those conditions set by the EU when Lloyds was bailed out in 2008, the bank has to sell off the whole of TSB by the end of next year. The more it sells now, the less it has to faff around trying to offload next year, when investor enthusiasm for bank stocks might not be so high.
2. This is a great time to do it
Although recent IPOs haven’t gone particularly straightforwardly, this is actually a surprisingly good time to float a new bank: RBS, HSBC and Barclays shares are all at or close to three-month highs.
Source: Yahoo Finance
3. The only thing keeping share price down is a lack of dividend in the short term
Lloyds chose to price TSB shares at 260p, just above the middle of their 220p-290p range: investors showed their approval by sending the price up 10% to just over 289p more or less immediately.
But one thing dampened spirits: back in May when Lloyds confirmed TSB’s flotation, it also made clear that the new bank won’t pay a dividend before 2017. That presumably has the dual effect of showing everyone how sensible it is with its money and enticing shareholders who are in it for the long term. Investor hysteria, though, will be kept to a minimum.
4. Everyone wants to be a challenger bank
When TSB is fully spun off from Lloyds, it'll be the largest of the UK's so-called 'challenger banks'. According to figures by the Office of Fair Trading, the 'big four' banks (RBS, Barclays, HSBC, Lloyds) provide three quarters of current accounts at the moment – but the public is getting increasingly comfortable with the idea of small, specialist banks. Everyone from Tesco to Virgin Money is launching their own current account – so now is the perfect time to test investors’ appetite for the market.
5. Retail investors are getting 30% of the offer
When Royal Mail was floated back in October, there was a lot of consternation that most of the portion being floated was being sold to institutional investors, rather than your ordinary, man-on-the-street retail investor. This morning, Lloyds (which, lest we forget, is still 25% owned by the government) said 30% of the offer – that’s an 11.55% slice of the bank – will go to retail investors. Which should keep MPs off Vince Cable's back.