The Government has postponed the sale of its Lloyds Banking (LLOY) shares because of choppy market conditions. It would make a loss by selling at the current 64p price.
Many stockbrokers had expected to pick up new customers from the Lloyds stock sale as privatisations have historically been good for encouraging new investors to try their hand at owning shares.
'Osborne will clearly be looking for a better deal for the Government, to maximise returns as best he can, and he won’t want any issue that was aiming for substantial involvement from private investors to be a flop,' says Russ Mould, investment director at AJ Bell.
'That would damage already fragile sentiment and make it harder for any future privatisations to do well.
Laith Khalaf, senior analyst at Hargreaves Lansdown, says the delay to the share offer will be a big disappointment for the hundreds of thousands of investors who had queued up for a chunk of Lloyds. He adds: 'Taking a big loss on selling shares when markets are low was always going to be a bridge too far for the Chancellor.'
The Government had previously implied it would sell its stake in Lloyds to the public in the spring of 2016.
‘The Government are committed to returning the bank to private hands and within that had previously pledged to offer at least £2 billion as a retail offering. Therefore we expect this share sale to proceed at some stage but the timescales are unknown,’ adds Khalaf.
Lloyds recently reintroduced its dividend, but it hasn’t been enough to prop up its falling share price.
Mould at AJ Bell notes that Lloyds is not the only banking share to be struggling at present.
'Bank sector indices in the UK, Europe and USA are all trading at their 12-month lows,' he comments, saying there are several reasons as to why this might be the case.
- Growing concerns over the state of the global recovery, and whether we are sliding back towards a recession
- The slow pace of interest rate increases, which is crimping banks’ profit margins
- The choppy nature of financial markets, which may hit the earnings power of those institutions with investment banking exposure (Barclays in particular, though this is less of an issue for Lloyds).
- The extent of any bank’s exposure to the oil industry, via the loans it has made to producers and explorers. This is already an issue in the US, where big banks like Bank of America, Wells Fargo, Citigroup and JP Morgan have all talked of higher provisions against loan losses and greater caution on their lending toward energy firms, although there are no indications yet of any such worries on this side of the Atlantic.