U.K.’s ABI Seeking More Information on Share-Sale Lockup Waivers

U.K. investors are seeking more information on investment banks enabling shareholders to sell shares they had promised to hold, said Robert Talbut, chairman of investment affairs at the Association of British Insurers.

“We’re simply asking for greater confidence around what these ’lockups’ mean; the circumstances in which they can be broken and therefore ensuring that the market has clarity on the particular situations and the likely availability of stock,” Talbut said in an e-mailed response to questions today.

The ABI, which represents firms with more than 1.8 trillion pounds ($2.8 trillion) of assets, wrote to the U.K. markets regulator this month 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, people familiar with the matter told Bloomberg News on June 21.

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 which could depress prices isn’t imminent, has prompted complaints when banks later waive the lockups.

The Financial Conduct Authority will meet with representatives of the ABI and possibly other investors to discuss their concerns over the next few weeks, a person familiar with the matter said. Talbut declined to comment on any specific deal.

Capital Shortfall

“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.

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. A spokeswoman for UBS declined to comment.

Lockup Agreements

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.

Lockup agreements “are important to the extent that the equity market needs to have a way of understanding liquidity in the market,” said Vivek Raja, an analyst at Oriel Securities Ltd. in London. Part of an investors’ calculation on risk is about understanding how many shares are in the hands of the public, or the so-called free float, he said.

“If the lockups aren’t worth the paper they’re written on, it makes a farce of free floats,” Raja said.

Government Briefed

Lloyds said on June 20 that it won’t need to offer new shares or contingent capital securities, instead raising funds such as from the disposal of the St. James’s Place stake and an auction of U.S. mortgage securities. Lloyds will also accrue more capital through retained earnings, it said. The U.K. Prudential Regulation Authority told Lloyds on June 20 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.

Before it's here, it's on the Bloomberg Terminal.