Lloyds £2bn sale delayed as Osborne rides out storm

lloyds bank

George Osborne said it was “not the right time” to sell the shares against a backdrop of a turmoil that has consumed global financial markets with falling commodity prices and the faltering Chinese economy. His comments will dash hopes that one of the UK’s largest public share offers was imminent. It had been pencilled in for March.

Even if markets recover in the spring, the Treasury may not press ahead with a sale until the autumn at the earliest The Times reports.

The summer would probably be seen as too difficult because of a possible referendum on whether Britain should stay in Europe and August’s traditionally quiet period for financial markets. The sale of the final part of the government’s stake in Lloyds was a general election pledge made by David Cameron. Mr Osborne insisted yesterday he wanted “a share-owning democracy”.

The government has already reduced its stake in the bank from 43 per cent to 9 per cent, raising £16 billion. The divestment has been at an average price of 79p, above the 73.6p the government paid to bail out the bank during the financial crisis, creating a profit for taxpayers of about £1.5 billion.

Volatility in global markets has dragged down Lloyds’ shares to well below that so-called in-price. Yesterday they fell to 64.1p. The chancellor had pledged to sell Lloyds’ shares to the public at a 5 per cent discount to the prevailing price, further widening the likely loss to the exchequer.

Market jitters have also hurt Royal Bank of Scotland. Its shares yesterday fell 2 per cent to 250.7p, half the government’s 502p in-price. Hopes for a sale of RBS stock in the next few months to build on its August divestment at 330p have diminished. The Treasury still aims to complete the sale of its shares during this parliament.

While Lloyds has been a victim of general market sentiment, there are also concerns about possible bad news specific to the lender.

Following plans by the regulator to impose a two-year cut-off for payment protection insurance claims, Lloyds, like other banks, is set to announce a large new provision to cover an expected surge in claims in the short term alongside annual results next month. Analysts believe that could be between £2 billion and £3 billion and could Lloyds’ prospects for increasing its dividend — and wipe out a possible additional special dividend.

Carl Howard, commercial director at TD Direct Investing, said: “While there is naturally going to be disappointment at a delay, some will be appeased that it hasn’t been cancelled completely.”

Chris Beauchamp, senior market analyst at IG Group, said: “Given the way the share price has moved, it is not surprising that Osborne has decided to hang on to the last vestiges of the Lloyds stake — better to take the flak over a change in plan than suffering brickbats for selling at too low a price.

“Given the outlook for the UK economy, confirmed by this morning’s GDP data, it seems reasonable to think that the time will come, once consumer spending rises and market sentiment improves.”