Lloyds retail sale back in the frame after taxpayer dividend boost
Lloyds will be fully returned to the private sector this year with billions of pounds' worth of its shares made available at a discount to ordinary investors, says the government.
Offloading the taxpayer-controlled banks is a key policy for the Conservatives. It would bring in a chunk of revenue to reduce the national debt and, they claim, and boost the economy by freeing up lending. But it hasn't exactly been plain sailing. The headline sell-off of Lloyds was derailed earlier this year by market turbulence and a slump in banking stocks in particular.
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A sale of £2bn worth of shares at a five per cent discount to retail investors, promised in the run-up to the 2015 election, should have taken place in the spring but was kicked into the long grass – and even the "drip feed" of shares to institutional investors has been put on hold.
Harriett Baldwin, Economic Secretary to the Treasury, said yesterday that the government was "committed to launching a retail sale of Lloyds Banking Group shares and to fully returning its stake to the private sector in 2016 to 2017", according to Sky News. The move would include "making Lloyds shares available to the public… so that we can build a share-owning democracy".
Baldwin's comments come with the Treasury's announcement that it benefitted from a dividend payout on its Lloyds shares this April of £130m. This takes the total return from distributions to £318m and the overall amount recovered so far to £16.8bn.
The taxpayer paid a total of £20.5bn to bail out the high street lender at the height of the financial crisis, in the process acquiring a 43 per cent stake. This holding has been reduced to 9.3 per cent and, if shares are only sold when their value rises above the average investment price of 73.6p, this would yield a substantial positive return.
Laith Khalaf, a senior analyst at Hargreaves Lansdown stockbrokers, says the dividend payouts mean the government could sell the remaining shares at a more manageable 70.5p and still break even. The stock was up 1.2 per cent at 68p at around lunchtime today.
The government is unlikely to sell shares at this low level, however. Bumper proceeds from the sale of Lloyds have in the past enabled it to claim it is on track to turn a profit on the wider set of investments in the banking sector, despite the near certainty that the eventual sale of Royal Bank of Scotland will result in a major loss.
Lloyds 'to dodge profit slump' because it lacks investment arm
Lloyds Banking Group will escape the sharp fall in profits which have hit US banks this year because it has no investment arm, UBS has said.
Profits are tanking at major lenders in the States because of this year's market volatility, which has made it hard to find clients for investment banking deals, reports the Daily Telegraph.
Lloyds, which is still nine per cent owned by the taxpayer, is expected to make a pre-tax profit of £1bn in the first quarter of this year, down from £1.2bn in the same three months last year – a "steady" performance, according to Jason Napier, of UBS.
He added: "As unremarkable as this might sound, stable profits in this environment and an underlying return on tangible equity of around 14 per cent are clearly the exception rather than the rule in European banking."
The Telegraph speculates this could be good news for the government, which is keen to finish its selloff of Lloyds shares, which were bought to prevent the bank from going bust during the global financial crisis of 2007-2008.
The Treasury has said it will not sell its remaining stake in the bank until it can be assured of getting at least 73.6p per share. Lloyds is currently listed at 68p per share. Napier predicts the price will hit 88p per share over the next 12 months.
However, analysts at Bernstein Research are less bullish, says The Telegraph, believing the bank may underperform, with its share price falling as low as 55p.
"With an underlying belief that both house prices and employment in the UK have topped, Lloyds to us is a classic structural short and, as we write this note, celebrating dividends from a continuously declining earnings stream might be premature," said the research firm.
Lloyds' profits will suffer this year from it no longer owning a stake in TSB - and from its controversial decision to buy back its ECN bonds, a deal which will cost the bank up-front, says The Telegraph, but pay for itself in the longer term.
Lloyds slams regulator's 'wholly unreliable' research
Lloyds Banking Group has questioned the methodology of the Competition and Markets Authority’s investigation of the banking sector, reports the Daily Telegraph.
The CMA is proposing a series of measures to improve competition in banking. These including the launch of a comparison website for small business bank accounts, an enhanced comparison service for personal current accounts, and wider advertising for the seven-day account switching service.
But in a strongly worded statement, lender said that some central parts of evidence used in the regulator’s research are "wholly unreliable" and "profoundly unsuitable".
Lloyds argued that the surveys and focus groups being used to assess planned reforms to the industry "do not provide robust evidence for the CMA’s investigation".
The bank said it would be "very concerned" if the CMA chose to use the "wholly unreliable findings from these pieces to draw any conclusions".
It continued that "qualitative research" is "profoundly unsuitable" as evidence to support any conclusions, as "focus groups can easily be biased, and some areas of customer insight simply cannot be reliably established with these techniques".
The CMA’s report was due in May but the regulator delayed publication until August, to allow it time to use surveys and focus groups to examine different solutions.
It already publishes a list of the worst offenders offering poor current account interest rates. The regulator estimates customers could be losing out on an average of £70 a year by not switching to the best account for their circumstances, rising to £140 and £260 for those with modest and large overdrafts.
Lloyds insists the CMA's research studies should be used to help generate ideas, rather than to judge proposals that have already been developed.
"The ideas generated in the creative process must then be tested using robust behavioural research techniques such as carefully designed randomised control field trials or appropriate laboratory experiments," the bank said.
The CMA declined to comment.
While Lloyds and other large banks are unhappy with some of the proposals, bosses of smaller and challenger banks have argued they do not go far enough.
"The CMA should go beyond its current draft remedies and make concrete proposals addressing the core underlying impediments to competition around capital, access to funding, access to payment systems and proportionate regulation," said a group of smaller lenders, which included Phillip Monks of Aldermore Bank, Craig Donaldson from Metro Bank, David McCreadie from Tesco Bank, Shawbrook's Steve Pateman and Secure Trust Bank's Paul Lynam.
They also called on the CMA to urge the Treasury to rethink a tax surcharge on banks' profit that they claim unfairly hits smaller institutions operating nationally compared to larger multinational peers.
Lloyds: George Osborne commits to new sale timetable
The government has confirmed the timetable for the Lloyds share sale, reports Money Marketing.
George Osborne has vowed to sell government shares to the retail sector and return the taxpayers' stake to the private sector in 2016-17. The share price currently stands at 69.1p, below the 73.6p paid by the then-Labour administration in 2009.
"The government is committed to returning the financial sector assets acquired in 2008/09 to the private sector," said the Chancellor in his Budget speech. "As there is no longer a policy need for the government to hold these assets, it will seek to dispose of them, reducing [public sector net debt] while maximising value for taxpayers."
He added: "UK taxpayers' money was used to bail out the banks, so it is right to give the public the opportunity to invest in Lloyds Banking Group."
A Conservative manifesto pledge assures a Royal Mail-style public share offer, which will see retail investors able to buy shares at a discount to the market rate and those with less than £1,000 to invest prioritised.
Osborne had been expected to sell £2bn of discounted shares to retail investors last month. However, that sale was postponed due to feeble market conditions at the time. The new timetable essentially pushes back the deadline as far as early next year if the share price remains subdued, although analysts were upbeat about a firmer commitment.
AJ Bell investment director Russ Mould says the new "firmness of the timetable" shows the government is "keen to press on as best it can without a disorderly market".
He adds: "There is an investment case developing for Lloyds; it is an old style of utility bank that is not growing quickly but is attractive over the long term."
Meanwhile, writing in the Daily Telegraph , Steve Davies of the Jupiter UK Growth Fund names Lloyds his fund of the week. "The valuations are cheap, but more importantly, and this is what gives me confidence, they are becoming more profitable," he writes.
"The question is, will shareholders receive more of the spoils in the form of dividends? I am confident that they will, particularly after Lloyds' recent announcement of a 2.75p dividend for 2015."
Lloyds hits back over Neil Woodford warning
Lloyds has defended itself over claims from one of the UK's best known fund managers that its balance sheet is susceptible to upset in the housing market.
Neil Woodford, who has attracted investor funds of around £14bn in just two years since setting his own firm, has long avoided dealing with the banking sector.
However, at an investor event this week, he responded to a question on Lloyds specifically by acknowledging it is "more investible than at any point since the financial crisis". But added he is still not convinced on the case for investment, notes the Daily Mail.
"One thing that continues to concern me is the exposure to the UK housing market," he said. "Any correction here would shatter the consensual view that its balance sheet is rock solid."
Lloyds Banking Group, which includes the Halifax and Bank of Scotland, is the high street’s biggest lender, with around a 25 per cent share of the mortgage market, notes the Mail.
The UK housing market has been recording huge price rises for a number of years and some studies suggest it is ripe for a correction, especially in highly inflated regions such as London. A turnaround could leave more borrowers in negative equity and increase the chances of defaults that would eat into Lloyds' profits.
But a spokesman for the bank dismissed the claims, saying borrowers hold an average of 54 per cent equity in their property. The more equity that is held, the lower the chances of trouble affecting the bank, which would be paid out first in the event of a sale and losses would need to be very steep to eat into outstanding loan balances.
The Motley Fool points out that Lloyds only had mortgage lending growth of one per cent in 2015, behind a wider market increase of 2.5 per cent "as the bank sought to safeguard margins".
Lloyds has risen from a low of 57p earlier this year in the wake of a sizeable increase in its dividend at its results, but it has been back on the wane in recent sessions. Having touched near its 73.6p bailout break-even price earlier this month, it has since dipped back below 70p and was at 69.3p this afternoon.
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