It’s been a couple of weeks since the chancellor officially confirmed a sale of the taxpayer’s stake in Lloyds was nigh. Now word is that the sale of up to half of the government’s £18bn stake in the bank could begin as early as September.
The process is likely to begin with a 5-10% stake in the bank being placed with institutional investors at a ‘small discount’ to the share price, the FT said this morning. That’ll be followed by a second institutional placing early next year, and a retail placing will take place shortly after. By the end of 2014, the government wants to have divested itself of its entire 39% stake in the company. Speedy.
The government is faced with the challenge of finding a balance between ‘achieving the best value for taxpayers’, ie selling it to a big buyer who will pay top dollar, and offering taxpayers the chance to benefit, ie. floating it on the stock market.
The reason the retail selloff is likely to take place towards the end of the process is to give the company a chance to gee up its profits and restart a dividend. But alas: although it has been suggested that taxpayers could be given ‘free’ shares, it now looks like they’ll have to pay up (are we missing something? MT thought taxpayers had paid up already…).
Potential buyers of that first 10% stake keep crawling out of the woodwork: over the weekend, Singapore’s sovereign wealth fund and Lord Davies were both named as suitors. Now Neil Woodford, the head of UK equities at retail fund manager Invesco Perpetual, has stepped forward.
The investor famously cashed out of the banking sector shortly before the banking crisis began, but he’s apparently signaled his intention to return by stumping up the £5bn needed to buy a 10% stake in the bank.
Meanwhile, the Co-operative bank has admitted it considered entering into a ‘resolution’ procedure with the Bank of England earlier this year – essentially, handing its assets over to the Bank for it to sort out, a situation which has unpleasant echoes of what happened to Northern Rock.
According to the BBC, when the group uncovered the £1.5bn hole in its finances, it weighed up the idea of entering into the process, which would have imposed losses on its lenders.
Instead, it came up with a £1bn ‘bail-in’ plan, asking its debt holders to cancel some of its debt in return for shares in the bank. It’s not a perfect solution, but it means creditors lose less than they could have. So it could be worse. Although when debt holders are called upon to give their consent to the deal (they must approve it before it takes place), we don’t imagine they’ll go to great lengths to show their eagerness.
-- UPDATE 3.23pm
Invesco has been in touch: