Lloyds Banking Group Plc will reap a gain of 400 million pounds ($596 million) from the sale of part of its stake in St. James’s Place Plc as U.K. lenders face pressure from regulators to bolster capital.
Britain’s biggest mortgage lender, which will retain 37 percent of St. James’s Place, sold 102 million shares in the company, realizing a gain at the upper end of its projection of 350 million pounds to 400 million pounds, the London-based bank said in a statement today. The shares sold for 510 pence apiece.
Lloyds Chief Executive Officer Antonio Horta-Osorio is reducing the bank’s balance sheet to enhance its financial strength after it was bailed out by the U.K. taxpayer during the banking crisis. The so-called non-core division has shrunk 49 percent to 98 billion pounds in the past two years. Lloyds acquired St. James’s Place when it bought HBOS Plc in 2008.
“The financial implications are relatively minor for Lloyds, but may prove helpful as the company seeks to convince regulators that it has enough capital to support lending and resume dividend payments to ordinary shareholders,” Gary Greenwood, an analyst at Shore Capital Ltd. in Liverpool, Britain, with a buy rating, wrote in a note to clients today.
Bank of England Governor Mervyn King signaled in November U.K. banks may need to increase the capital they hold against potential losses. He asked the Financial Services Authority to investigate which banks might be undercapitalized.
The Financial Policy Committee meets on March 19 and will publish a statement on bank capital shortages March 27, with the full minutes of the meeting being released on April 5.
The sale will boost Lloyds’s core Tier 1 capital ratio, a measure of financial strength, by 20 basis points, or about 600 million pounds, it said. The ratio was 12 percent at the end of 2012. Under forthcoming Basel III capital rules, the sale will add 500 million pounds, or 15 basis points, the bank said.
The sale had demand for about twice the number of shares on offer, said a person with knowledge of the matter, who asked not to be identified because the details are private. Bank of America Merrill Lynch was the sole manager of the transaction.
St. James’s Place, which advises clients with typically more than 100,000 pounds to invest, has more than doubled funds under management over the last five years as economic turmoil and a changing tax burden in the U.K. prompted high earners to look for investment advice. The firm charges annual fees for investing clients’ assets in third-party funds.
St. James’s Place closed at 519.50 pence in London, down 3.2 percent on the day. The shares have gained 23 percent this year. Lloyds advanced 1.2 percent to 50.60 pence, bringing annual gains to 5.6 percent.