The U.K. government may start selling its 40 percent stake Lloyds Banking Group Plc this year after a surge in the bank’s shares, according to Robert Talbut, chief investment officer of Royal London Asset Management Ltd.
A partial sale would be well-received by investors and voters, two years before Britain’s next general election, said Talbut, who helps manage 45 billion pounds ($70 billion) of assets, in an interview. Lloyds has gained 56 percent in the past year to 55.3 pence in London trading, 14 percent below the government’s break-even price.
“There are advantages from the government’s perspective and management perspective of starting that process, with a favorable wind, some time this year,” said Talbut, 52, who is also chairman of investment affairs at the Association of British Insurers, which represents firms with 1.8 trillion pounds of assets. “The government has an eye on the electoral timetable so with a couple of years to go if they could get rid of some of the stakes, then that will be seen as quite useful.”
Taxpayers injected about 20 billion pounds in Lloyds, Britain’s biggest mortgage lender, and 45.5 billion pounds in Royal Bank of Scotland Group Plc to bolster the lenders’ capital amid the 2008 financial crisis. The government has been prevented from selling its stakes as a stalled U.K. economic recovery and banking scandals including loan insurance mis-selling have left the shares behind the U.K.’s break-even price of investment.
“I don’t think they should be necessarily wedded to the idea they can’t sell any shares below the entry price,” Talbut said. “They want to make money on the overall holding. If they are seen to be making a start on that process below their average entry price, I think that is quite good in sending a signal to the market.”
The government may offer some shares to retail investors as part of any sale, he said. Business Secretary Vince Cable’s proposal to give away shares in the banks to the public is “not the best of ideas” because of the cost of administering 20 million shareholders and the political pressure if the shares underperform the market, Talbut said.
Talbut, along with Richard Buxton, head of U.K. equities at Schroders Plc and Keith Skeoch, chief executive officer of Standard Life Investments, last year told lawmakers that political interference was hampering the recovery of RBS, recipient of the world’s biggest bank bailout and 81 percent owned by the taxpayer.
Prime Minister David Cameron on Feb. 18 urged RBS CEO Stephen Hester to “accelerate” the bank’s return to health and left open the possibility of giving the public shares in the bank.
“I’m a little bit surprised at that because what I’m told privately is that politicians on both sides of the political fence are pretty happy with the job Hester has done,” said Talbut.
Hester gave up his 963,000-pound bonus last year following criticism of bankers’ pay from politicians and the public. Hester has cut assets by more than 800 billion pounds and eliminated about 36,000 jobs since taking over from Fred Goodwin in 2008.
RBS closed at 345.1 pence a share yesterday, valuing the firm at about 38.6 billion pounds, and about 45 percent below the government’s break-even price. Royal London holds Lloyds stock in its actively managed funds and RBS in index-linked funds.
“For RBS my honest view is the government is stuck with it for the foreseeable future,” Talbut said. “With RBS it’s intensely political. It’s more difficult to take the view this is a company that can completely determine its own future.”