MarketLine Blog

Lloyds success to pave way for RBS sale?

The UK government has sold another tranche of the shares it owns in the Lloyds Banking Group – one of the banks controversially bailed out during the financial crisis. The latest round of sales, aimed to capitalise on prices close to the 12-month high, have coincided with Lloyds’ announcement that it will commence paying dividends for the first time since the bailout on the back of a fourfold increase in the group’s underlying profit.

UK Financial Investments (UKFI), the entity set up to manage government stakes in bailed-out banks, had previously announced plans to reduce the government’s stake in Lloyds during the run up to the general election in May and this latest round of sales has seen the taxpayers’ stake in Lloyds drop to 23% from a peak of 40% at the height of the financial crisis. According to city analysts, UKFI could have disposed of its remaining Lloyds stake by the end of 2016.

The sale earned around £500m for the government and brings the total recouped to approximately £8.5bn, including £1bn raised since the launch of the latest round of sales in December 2014. The government also received £130m as part of the £535m dividend paid out by Lloyds (0.75 pence per share). All shares sold have fetched above the price paid by the previous government during the bailout (73.6 pence) and was hailed as a success by Chancellor George Osborne “These sales are part of our plan to return Lloyds to the private sector and get taxpayers’ money back. The proceeds will be used to reduce the national debt”.

With the Lloyds sell-off seemingly on track, eyes will turn towards Royal Bank of Scotland (RBS) in which the government still holds a 79% stake having forked out £45bn to save the bank from collapse – more than double the bailout package given to Lloyds. Osborne has promised to sell the government’s stake in RBS “as quickly as we can” if he were to remain as Chancellor after the election. However, doubts have been raised as to the feasibility of this due to the size of the stake the government holds and the fact that RBS shares are still trading well below the 502 pence the government paid for them (or the 455 pence required to break even) – partly due to its continuing losses.

The government is understandably keen to play up the latest sales after it was heavily criticized for failing to get full value for taxpayers during the sale of Royal Mail in 2013, but it will now be under pressure to maintain these levels of return on investment as it plans further sales of its shares in both Lloyds and RBS.

For more, please check out our Lloyds Banking Group Company SWOT Profile

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