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U.K. Lloyds Share Sale Left Taxpayer With Loss, NAO Says

Lloyds Bank
A logo sits on a metal night safe in the wall of a Lloyds Bank branch, a unit of Lloyds Banking Group Plc, in London. Photographer: Chris Ratcliffe/Bloomberg

The U.K. government’s sale of shares in Lloyds Banking Group Plc in September left the taxpayer with a 230 million-pound ($374 million) loss, rather than a profit as initially reported, the National Audit Office said.

While comparing the price at which the shares were bought with the sale price showed a gain to the taxpayer of 120 million pounds, this was outweighed by the cost of borrowing money to buy the holding, the government-spending watchdog said in a report published today.

The shortfall “should be seen as part of the cost of securing the benefits of financial stability during the financial crisis, rather than any reflection on the sale process,” the report said. U.K. Financial Investments Ltd., which oversees the government stake, managed the sale “very effectively” and provided “value for money,” it said.

The sale of 3.2 billion pounds of Lloyds shares, the first move toward returning Britain’s biggest mortgage lender to full private ownership, marked a victory for Chancellor of the Exchequer George Osborne as he seeks credit for reversing bailouts initiated by the previous Labour government in the financial crisis. Osborne has said that a sale of Royal Bank of Scotland Group Plc, which received the biggest banking rescue, won’t happen before the next election in 2015.

“As the National Audit Office’s report says, ‘this first sale represents value for money,’” Financial Secretary to the Treasury Sajid Javid said in an e-mailed statement. “The proceeds from the sale have reduced the national debt by over half a billion pounds.”

No Fees

The bookrunners on the September deal agreed to charge UKFI no fees for the transaction, saving about 4.8 million pounds, the NAO said in the report. UKFI also received 25 percent of the 4.7 million-pound commission that the bookrunners made from selling the shares to investors, the report said.

Lloyds shares were sold when it traded close to a 12-month high, at the upper end of estimates for the business’s value and at a “relatively low” discount to their market value, the report said.

Britain retains a 33 percent stake in London-based Lloyds after injecting more than 20 billion pounds into the lender amid the 2008 banking crisis.

The NAO recommended the Treasury, which is expected to sell a second set of shares in 2014, should take account of financing costs when considering future transactions.

It also said that “ahead of the next sale, UKFI should analyze in detail who bought and who sold shares in the aftermarket and whether such behavior was anticipated correctly in the pricing and allocation of shares.”

The government was approached by three potential buyers for Lloyds shares in 2012 and 2013 and informal discussions had taken place. Such a deal would have been “difficult to justify” unless the shares could have been sold at a premium to the market price, the report said.

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