The government is to sell at least £2 billion worth of shares in bailed-out lender Lloyds Banking (LLOY) to retail punters. Shares in the group improved 1% to 77.3p when the Treasury confirmed that the government's stake would be sold in 2016 at a 5% discount.
Ian Gordon, an analyst at Investec, believes the £2 billion was slightly lower than expected. The offer is part of the government's plans to sell its remaining 12% stake in the lender in the coming months with shares being sold to institutions.
As an incentive to lure private investors to the sale those investing less than £1,000 in the offer will be given priority. Investors choosing to hold their shares for at least a year will receive a bonus share for every 10 held, capped at £200.
The inducements are appealing, but investors should only buy the shares if they believe it will help meet their investment objectives.
There could be good news for those wishing to apply online for a slice of the part-state owned bank. Plans by the regulator to set a 2018 deadline for all payment protection insurance (PPI) miss-selling compensation claims could see Lloyds hold onto more of the profits that help pay the dividends. It has allocated £13.5 billion so far to cover the cost of these claims. Gordon expects another £1.5 billion of PPI claims before the proposed 2018 deadline.
Lloyds will pay 2.3p a share dividend for 2015 according to Gordon's forecast, the equivalent of a 2.9% yield.
The proceeds of next spring’s offer will reduce the £1.5 trillion national debt and a TV campaign is planned to publicise the sale.
Some £20 billion of tax-payers’ cash was injected into the bank after its disastrous takeover of Halifax Bank of Scotland in 2008 left it on the brink of collapse.
