Government to sell down taxpayer stake in Lloyds Banking Group

Government to sell down taxpayer stake in Lloyds Banking Group.

George Osborne has announced plans for a third sale of Lloyds Banking Group shares before the general election, meaning the Government could by next summer recover half the money it spent bailing out the bank.

The Treasury plans to sell as much as 5.4pc of Lloyds over the next six and a half months, returning just under £3bn at current prices.

This would mean the Government’s stake would fall below 20pc, and the taxpayer would have made back £10.4bn of the £20.5bn it paid to bail out the bank at the height of the financial crisis six years ago.

Wedensday’s news came as a surprise to many in the City, who had not expected the Government to sell any more shares in the bank before May’s vote.

However, the Bank of England's stress tests on Tuesday, which spared Lloyds from having to submit new capital plans, proved to be the catalyst for the sale.

“This government is determined to strengthen the banking system and to get back to the taxpayers the money that was put into the banks,” the Chancellor said.

UK Financial INVESTMENTS (UKFI), the body that manages the taxpayer’s stake in Lloyds and Royal Bank of Scotland, has devised a scheme that will see shares sold at a drip feed rather than – as with the previous two sales – in large slices.

A cap on the number of shares that can be sold means the Treasury will retain a significant stake in the bank going into May’s election, however.

UKFI has not defined how much of the Government’s stake will be sold, but instead capped the number of shares it will dispose of.

It will sell no more than 15pc of the total volume of shares trading on the open market between now and June 30, a scheme designed to avoid flooding the market with supply and thus driving down Lloyds’ share price.

Based on typical levels of trading in Lloyds, this means that by the end of June, the Government could bring its holding down from 24.9pc to around 19.5pc, compared to the 38pc of 15 months ago.

Previous sell-offs, in September last year and March this year, have seen UKFI sell off a large number of shares in chunks to institutional investors, and to achieve this it had to sell shares at a discount.

Gradually selling them on the open market means it is likely to avoid this. “We don’t have to accept such a discount,” a source said.

UKFI has appointed Morgan Stanley to gradually sell shares to the market through brokers. It has told the bank not to dispose of them at below 73.6p, the break-even price of 2008’s bail-out to ensure the taxpayer makes a profit.