Part-nationalised lender Lloyds Banking Group (LLOY) improves 0.6% to 76.4p as it prepares to float its TSB business next month, which could value the retail bank at some £1.5 billion.
The 631-branch lender serves retail and small businesses and is the UK’s seventh largest bank by branches serving 4.5 million high street customers.
Lloyds will sell 25% of TSB through the initial public offering (IPO) ahead of a full exit next year. The bank is being pressured by the European Union to sell the branches in a bid to increase competition after needing a £20 billion bail-out in 2008.
Lloyds is pursuing an IPO as its preferred exit route after a deal to sell the branches to the Co-operative Bank spectacularly collapsed when its chosen acquirer backed out after uncovering a £1.5 billion hole in its finances.
In an attempt to ease fears over the stock’s huge overhang in the next 18 months and to avoid the disappointing response insurance and holiday provider Saga’s (SAGA) debut received last week, Lloyds hopes to tempt investors with a free share for every 20 bought on shareholdings of up to £2,000 if held for 12 months.
However, those choosing to back the bank on its merits and not for the free gift could add a secure lender to their portfolio. TSB keeps its distance from risky businesses such as investment banking and starts from a secure base, where its reverses are more than 20% higher than its risk-weighted assets giving it a strong cushion against economic shocks.
