The government’s planned sale of its final 10% stake in Lloyds Banking Group to the public, originally scheduled in somewhat vague terms for this spring, has been delayed due to market turbulence.
Lloyds was originally purchased as part of the state-backed bailout following the numerous financial catastrophes of 2008. The sale plan for £2bn worth of shares in the group includes several incentives for people who perhaps wouldn’t usually think of investing in such a way:
- Those applying to invest less than £1,000 will be given priority
- Members of the public will get a 5% discount off market price
- Those who hold their shares for over a year will receive a bonus share for every 10 held (up to a value of £200)
In an email sent out to those who registered their interest, George Osborne says: “I want us to create a share owning democracy in Britain. The Lloyds Banking Group share offer will help build that by giving the general public the chance to have a greater stake in our economy, and it will encourage long-term share ownership. So it will go ahead.
“It is also my responsibility to ensure economic security. With the turbulent conditions we see in financial markets, I hope you agree with me that now is not the right time for that share offer.”
In other words, the share price of Lloyds has fallen, at the time of writing to 65p, and since the government paid 74p, it needs to be higher to make sure that the government doesn’t sell at a loss. In May 2015, the shares hit 89p.
However, if you do want shares in Lloyds, you don’t have to wait for George Osborne’s permission to do so – you could go ahead and do it yourself right now, although you wouldn’t be getting the incentives if you did this.
The Moneywise verdict
We can call the initial 5% discount and bonus shares a 15% discount, though it's a little more complex than that as it depends on the share value when the bonus shares are issued.
Assuming the government will hold off selling until the shares are worth 75p or more, which seems to be the mainstream view from experts, you'll get more for your money if you can buy the shares for less than 63.75p instead of waiting for the discount when it eventually comes. That’s roughly the price they are now.