Lloyds set to return to privatisation


The government is preparing to start selling the taxpayer's share of Lloyds Banking Group back into private ownership.

It is also considering whether to split Royal Bank of Scotland into a 'good' and a 'bad' bank – an exercise likely to delay the return of RBS to private shareholders.

In his speech at the Mansion House dinner to City leaders on Wednesday, chancellor George Osborne announced he is "actively considering options for share sales in Lloyds", 39% of which is owned by taxpayers.

First bite of the cherry is likely to be offered to major institutions, says Osborne: "Institutional placement is likely to be the most effective way of managing risk and getting value."

The general public will then be offered a further tranche of shares.

Plans for the possible break up of RBS are only at the "urgent investigation" stage, but Osborne is considering whether to hive off the bank's toxic loans into a separate bank.

"We will judge whether this will allow the bank to focus on its future supporting the British economy," he explains. A decision will be announced this autumn.

Nancy Curtin, chief investment officer at Close Brothers Asset Management, is in favour of the move. "Given the size of gaping hole at the heart of the government's balance sheet, returning RBS and Lloyds to private hands as quickly – and efficiently – as possible is vital, and Lloyds was always the most attractive option to start the process."

She points out that privatisations of companies with an improving earnings record, such as British Gas and BT, have historically been more successful. "With the regulator having signed off Lloyds' plans for meeting capital requirements, expectations have been raised that dividends will resume sooner rather than later, compounding the rehabilitation of the bank in investors' eyes," she adds.

John Cridland, director-general of the CBI, agrees. "It's in everyone's interests to get Lloyds and RBS off the government's hands and back into private ownership."

He adds: "With the share price in the ballpark of what the government paid for it, Lloyds is approaching the point when it can return to private ownership on good terms for the taxpayer."

But he is less enthusiastic about an RBS split, not least because "a review creates a period of uncertainty when the focus should be on lending and growth."

This article was written for our sister website Money Observer