The Government has confirmed, as previously rumoured, that its stake in Lloyds Banking Group is to be sold to institutions alone. There will not be an offer to private investors as was formerly indicated would take place.
Chancellor Philip Hammond said “Returning Lloyds to the private sector is in the interests of the bank, taxpayers and the country as a whole” and “That is why exiting our stake in Lloyds in an orderly way and at the best possible price is one of my top priorities as chancellor”. The Government expects to get back more than the cash it invested in the bank during the financial crisis (i.e. make a profit on its investment which is more than is likely with the Royal Bank of Scotland). Mr Hammond added that after “listening to the experts” he had decided to drop any offer to private investors. His excuse: “Ongoing market volatility means it is not the right time for a retail offer”.
Comment: he perhaps could have been more honest and said that any such offer may not have been very attractive to private investors in the foreseeable future. And he could have gauged the level of interest because private investors could previously register their interest in such an offer.
Many private investors have become disillusioned with banks as an investment in the last few years. They are still attracting law suits on various issues and their accounts are still open to manipulation. In addition the nationalisation of banks such as Northern Rock and Bradford & Bingley (and the effective nationalisation of RBS) using new legislation introduced by a Labour Government has made them look exceedingly risky. The current share price of Lloyds is 52p and it is interesting to look back in time. On the 1st April 1999 (a real April fool’s day for investing in banks) it was almost ten times that.
So even though Lloyds offers a decent prospective yield, private investors might have taken a somewhat jaundiced view of any offer even if it was at a discount. Mr Hammond has probably made a sensible decision. You can of course always pick up some shares in the market if you want a stake in Lloyds and the share price has been trending down of late.