Although retail investors weren't given the chance to participate in the government's latest sale of shares in Lloyds Banking (LLOY), today's share price drop actually puts the stock very close to the 74.7p at which institutions have mopped up 7.8% of the bank. At the time of writing, Lloyds trades at 75.98p.


The government last night (25 Mar) announced plans to offload another chunk of its holding in the UK bank. The shares were placed at a 4.6% discount to the day's closing price of 79.11p. It provides the government with £4.2 billion cash and leaves it owning 24.9% of Lloyds.


The transaction provides a small profit to the Treasury as the government originally paid 73.6p for the shares in 2008 following Lloyds' disastrous takeover of troubled rival Halifax Bank of Scotland.

Web - Lloyds - 26 March 2014

The government started disposing of its stake back in September when it made a £61 million profit from the £3.2 billion sale of 6% of the lender, once again to other banks and institutions.

Investec analyst Ian Gordon believes Lloyds offers reasonable upside for a relatively low-risk stock and that the ban on the government selling more Lloyds shares for another 90 days suggests the shares should respond positively to a sharp return to profit in the first quarter and beyond.

This second sale cements the view that the government is trying to fully exit Lloyds before next year’s general election. The bank has made good progress returning to profit last year making £415 million before tax following a £600 million loss in 2012. Asset sales and exiting international markets repaired its balance sheet giving it a healthy 14% core tier 1 ratio.

One concern remains compensation payments for those to whom it mis-sold payment protection insurance (PPI) and other products, which sliced £3.5 billion off its profits last year.

Issue Date: 26 Mar 2014