The U.K. government is considering selling as much as 5 billion pounds ($7.6 billion) of Lloyds Banking Group Plc (LLOY) shares as a first step to reducing its holding in the lender, two people with knowledge of the plan said.
The government is weighing whether to sell 5 percent to 10 percent of Lloyds to money managers as soon as September, said the people, who asked not to be identified because a decision hasn’t been reached and any sale will be subject to market conditions. The initial transaction would be a test of appetite for a further offering of shares to both institutional and individual investors, the people said.
The government today hired JPMorgan Chase & Co. (JPM) to advise on a strategy for returning both Lloyds and Royal Bank of Scotland Group Plc to private investors. It also shortlisted 11 banks as potential bookrunners for a stock offering. The government’s decision on which banks from that group will manage a sale will be based mainly on fees, the people said.
“This is essentially a privatization, and governments have always been tough on fees,” said Philip Keevil, a partner at New York-based Compass Partners. “It’s a huge deal and carries not only league-table credits but also bragging rights. The firms that get the business will dominate the equity league-tables for the year, which they presumably hope will lead to more private-sector business with better” fees, he said.
Some of the banks vying to manage the sales are offering to do it for no charge to secure the assignment, the people said. Clients in Europe, the Middle East and Africa paid on average about 2 percent of the value of a sale in fees in secondary stock offerings in Europe this year, according to data compiled by Bloomberg. New York-based JPMorgan is the ninth-ranked underwriter of such sales in Europe this year, the data show.
The bank, whose senior advisers include former Prime Minister Tony Blair, isn’t charging the government a fee for its advisory work, another person with knowledge of the talks said.
Kate Haywood, a JPMorgan spokeswoman in London, declined to comment on Blair’s involvement or the firm’s fees. London-based spokesmen at the Treasury, Lloyds and U.K. Financial Investments Ltd., which oversees the government’s stake in Lloyds, declined to comment.
The 11 banks UKFI shortlisted as bookrunners include Barclays Plc (BARC), Goldman Sachs Group Inc., Morgan Stanley and UBS AG (UBSN), UKFI said in an e-mailed statement today. Spokesmen for 10 of them declined to comment while a spokeswoman for Goldman Sachs didn’t return calls for comment.
Lloyds fell 1.1 percent to 69.25 pence in London trading, valuing the government’s stake at about 19 billion pounds. The share price exceeds the 61 pence at which the government expects to break even on its holding after taking into account fees the bank has paid the government for the option of insuring its worst assets.
Following is a list of the shortlisted advisers:
To contact the editors responsible for this story: Edward Evans at at email@example.com