U.K. Lloyds Sale Seen Delayed on Syrian Crisis, Fed TaperingGavin Finch and Ambereen Choudhury
A sale of the U.K.’s stake in Lloyds Banking Group Plc is facing mounting hurdles as the U.S. debates attacking Syria and the Federal Reserve weighs slowing monetary stimulus, three people with knowledge of the discussions said.
The U.K. Treasury, which had been preparing to sell as much as 5 billion pounds ($7.8 billion) of shares in the bailed-out lender as soon as this month, is reluctant to go ahead as tensions in the Middle East threaten to destabilize markets, said two of the people, who asked not to be identified because the talks are private. No final decision on the timing of the sale has been made, the people said.
“The threat of war is not particularly helpful for markets, which therefore would not be particularly helpful for a stake sale,” said Joseph Dickerson, a banking analyst at Jefferies International in London who rates Lloyds a hold.
The prospect of a U.S. attack in retaliation for Syria’s alleged use of chemical weapons caused the Standard and Poor’s 500 Index to drop the most since May 2012 last month and pushed oil to the highest in more than two years. Stocks are also under pressure on concern the Fed will start tapering its $85 billion in monthly bond purchases at its Sept. 17-18 meeting after minutes of the central bank’s July meeting showed policy makers backing stimulus cuts this year if the economy improves.
Chancellor of the Exchequer George Osborne is seeking to capitalize on the 56 percent gain in Lloyds shares this year which has pushed the stock to above the price at which the government says it will break even on its 20 billion-pound investment.
Still, the U.K. doesn’t want to leave investors who buy Lloyds shares with later losses because that would jeopardize any subsequent offerings of its stock in Lloyds and Royal Bank of Scotland Group Plc, the people said.
Lloyds closed at 74.77 pence, up 3 percent on the day. That’s above the government’s 61 pence break-even price and the biggest gain since Aug. 1.
Should market turbulence abate, the government could still proceed with a sale toward the end of the month and is ready to do so at short notice, two of the people said.
Officials at London-based Lloyds, U.K. Financial Investments Ltd., which oversees the government’s holdings in the bank, and the Treasury declined to comment.
Lloyds Chief Executive Officer Antonio Horta-Osorio said on Aug. 1 he was ready for the government to start cutting its 39 percent stake after the lender posted a 1.56 billion-pound profit for the first half and announced it would start talks with regulators about resuming dividends.
In July, the government hired JPMorgan Chase & Co. to prepare a strategy for returning both Lloyds and RBS to private investors. The Treasury also shortlisted 11 banks to run future stock offerings.
That momentum may be jeopardized by a widening of the Syrian conflict. After 2 1/2 years of fighting between Syrian President Bashar al-Assad and rebel groups claimed more than 100,000 lives, last month’s chemical-weapons assault on rebel-held territory jolted Western leaders from issuing condemnations to weighing intervention.
U.K. Prime Minister David Cameron lost a Parliamentary vote to back military action. President Barack Obama is seeking approval for strikes on Syria from Congress, which re-convenes next week.
“It all depends on how long the bombardment lasts, how widespread and the response of the Syrians and the Iranians, both of whom have made very strident threats,” said Philip Keevil, a partner at Compass Advisers Group LLC, which has offices in London and New York. “If there was counter action, say, against Saudi or Israel or against shipping in the Gulf, it would likely have a negative effect on equity issues and the willingness of banks to underwrite” a stock offering.