Congratulations: you own 43% of Lloyds superbank

The taxpayer is left with a 43% stake in the new Lloyds-HBOS superbank after an unpopular rights issue...

Last Updated: 31 Aug 2010

Lloyds Banking Group, the superbank formed by the merger of Lloyds TSB and HBOS, will be 43% state-owned after institutional shareholders cold-shouldered the latest capital-raising effort today. The two banks had offered 30m of new shares via a rights issue – and to nobody’s great surprise, failed to sell about 99% of them. As underwriter, the government was forced to step in and buy the lot – and since it’s funding this with £16bn or so of taxpayers’ money, that means we own the stake. So we’ve all got a vested interest in its recovery now...

HBOS and Lloyds were seeking £11.5bn and £5.5bn respectively to finance the merger, which was rushed through by the Government in a bid to prevent the former’s collapse at the height of the banking crisis. But with both banks continuing to trade well below the rights issue offer price, investors had no interest in shelling out for the new shares. Just 0.24% of the 17.7m HBOS shares on offer were sold, while Lloyds didn’t fare much better, flogging just 0.5% of its 13m shares. So the Government was left with a 58% stake in HBOS and a 30% stake in Lloyds – equivalent to a 43% stake in the combined entity.

It’s no great shock that nobody wanted the shares. HBOS shares were up for sale at 113.6p, and are currently available on the open market for about 84p, while Lloyds shares were on offer at 173.3p, also well below its current market price of about 140p. So it’s really a wonder that they managed to shift any at all. It also means that the Government is now sitting on an even bigger loss on its various banking shares, given that they’re all worth substantially less than the price paid for them.

Still, the hope is that this new superbank – the UK’s biggest, controlling more than a quarter of the UK personal bank account and mortgage markets – will eventually turn out to be a good investment for the taxpayer. The irony is that it might be at our own expense: the government rode roughshod over competition rules to push the deal through, but even the Office for Fair Trading has warned that it could lead to a ‘substantial lessening’ in the choice of financial products. So your new investment may unfortunately come at a price.

And it hasn’t been an auspicious start for the Lloyds Banking Group (which will start trading later this month): it admitted today that it’s been forced to shell out £180m in fines to US regulators after altering the details of its Sudanese and Iranian clients to get round anti-terror laws. Not exactly the best way for a new superbank to make friends and influence people...

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