U.K. Regulator Said to Examine Share-Sale Lockup Waivers

The U.K. markets authority will study whether banks behaved appropriately when they enabled big shareholders to sell shares they’d promised to hold, according to people familiar with the matter.

Investors complained after Bank of America Corp. in May helped Lloyds Banking Group Plc sell 77 million shares in St. James’s Place Plc two months after telling buyers that Lloyds wouldn’t sell more of the British wealth manager’s stock for a year, said the people who asked not to be identified because the discussions weren’t public.

Banks managing share sales for companies with big blocks of stock sometimes enter “lockup agreements” in which the selling shareholder promises not to unload more shares for a set amount of time. The practice, which seeks to reassure buyers that a new sale that could depress prices isn’t imminent, has prompted complaints when banks later waive the lockups.

The markets regulator will meet with representatives of the Association of British Insurers and possibly other investors to discuss their concerns over the next few weeks, one of the people said. The ABI, which represents firms with more than 1.8 trillion pounds ($2.8 trillion) of assets, wrote to the Financial Conduct Authority this month after Lloyds sold a new round of St. James’s Place stock on May 23. St. James’s Place stock fell 10 percent on the day of the sale.

“We are aware of the issue and can’t comment further,” said a spokesman for the FCA. Bank of America, based in Charlotte, North Carolina, and London-based Lloyds, Britain’s biggest mortgage lender, declined to comment on the issue.

Capital Constraints

Lloyds sold 77 million St. James’s Place shares on May 23 to plug a capital shortfall even though it had agreed to a yearlong lockup when it sold 102 million shares on March 12. Bank of America managed both sales.

UBS AG, Switzerland’s biggest bank by assets, in March waived a 90-day lockup to help NTC Holding sell its stake in Danish phone operator TDC A/S, a person familiar with the matter said. Copenhagen-based TDC’s stock fell 1.6 percent on March 27, the day of the sale.

Daimler AG got a waiver from a six-month lockup to sell its stake in Airbus SAS parent European Aeronautic, Defence & Space Co. for 2.2 billion euros ($2.9 billion) in April, a person familiar with the matter said. Goldman Sachs Group Inc. and Morgan Stanley, which managed that sale, declined to comment. EADS rose 4.9 percent on April 17, when the Daimler sale was completed.

The Daimler sale came days after Spain’s industrial holdings company SEPI reduced its stake in EADS, and after Lagardere S.C.A. exited its stake in Europe’s largest aerospace company.

Government Briefed

Lloyds said yesterday that it won’t need to offer new shares or contingent capital securities, instead raising funds from the disposal of the St. James’s Place stake, an auction of U.S. mortgage securities and the sale of its share of Sainsbury’s Bank Plc. Lloyds will also accrue more capital through retained earnings, it said. The U.K. Prudential Regulation Authority yesterday told Lloyds it must fill a 7 billion-pound capital hole.

The FCA and U.K. Financial Investments Ltd., which manages government investments in banks including Lloyds, were briefed on Lloyds’s May sale before it happened, one of the people said.

You might like: