The government has begun the process of returning Lloyds Banking Group to the private sector. It sold 6% of its 39% stake in the bank to institutional investors this week, raising £3.2bn. It sold the shares at 75p, thus making a small profit for the taxpayer. The previous government bought its stake at 73.6p. Retail investors will be invited to buy shares when the next tranches are sold.
What the commentators said
The sale, exactly five years after Lloyds took over HBOS, which led to its £21bn bail out, “is a potent symbol of the UK’s return to health”, said Sharlene Goff in the FT. Foreign investors seem confident that Britain is recovering.
Lloyds is a largely domestic bank and thus highly geared to the British recovery, added Ian King in The Times. This sale underscores its recovery under chief executive Antonio Horta-Osorio. It has cleaned up its balance sheet and beefed up its capital enough to start paying dividends again. Half-year earnings were ahead of forecasts. “The Black Horse has shaken off its past.”
All this helps explain why the share price has almost doubled in the past year, thus racing ahead of its peers. It looks “fully valued” on 1.4 times book value, said Lex in the FT, so the sale looks well timed. Lloyds may be the flavour of the month now, said Jonathan Guthrie, also in the FT, but keep in mind its exposure to residential mortgages, a sector boosted by the government’s efforts to revive the housing boom. “It could all still end messily.” This sale may mark the end of a crisis, but “it portends another”.