U.K. to Sell Lloyds Stock to Market, Abandoning Retail Offer

  • Stock can’t be sold below ‘fair value’ over next 12 months
  • Morgan Stanley will offer up to 15% of trading volume in stock

The British government will resume selling shares in Lloyds Banking Group Plc below its average bailout price, abandoning a previous plan to hold an offering for retail investors.

The Treasury instructed Morgan Stanley to sell down its 9.1 percent stake over the next 12 months, according to a statement Friday from U.K. Financial Investments Ltd., which manages the government’s stakes in banks. Morgan Stanley can offload as much as 15 percent of the trading volume in Lloyds stock, and can’t sell below a “fair value” price that UKFI didn’t disclose.

While the government is restarting a sale process paused amid the Brexit vote, Chancellor of the Exchequer Philip Hammond said the time wasn’t right for a retail offer, favored by his predecessor George Osborne, given heightened market volatility. The stock is trading well below the 73.6 pence average price the government paid in its 20 billion-pound ($25 billion) bailout at the height of the financial crisis.

“Our plan will get back all the cash taxpayers invested in Lloyds during the financial crisis and leave the bank in a better place to continue the crucial role it plays,” Hammond said in a statement.

Lloyds shares fell as much as 5.8 percent, the most since July, and were down 2.7 pence to 52.28 pence at 3:25 p.m. in London. The stock has dropped 28 percent this year as uncertainty from Brexit and lower interest rates have weighed on its earnings outlook.

Break Even

Taxpayers have received about 16.9 billion pounds from share sales and dividends in the eight years since the financial crisis, according to figures from UKFI and Lloyds. That leaves about 3.4 billion pounds needed for the U.K. to break even, which is the approximate value of the U.K.’s remaining stake.

Lloyds “welcomes the government’s decision to resume the trading plan to return the bank to full private ownership,” Chief Executive Officer Antonio Horta-Osorio said in a statement. “This reflects the hard work undertaken over the last five years to transform the group into a simple, low-risk and customer-focused bank that is committed to helping Britain prosper.”

Osborne pledged before the election in May 2015 to offer Lloyds shares in a discounted mass privatization that recalled the selloffs of the Thatcher era in the 1980s. That plan was put on hold earlier this year because of volatile markets before the U.K. vote to exit the European Union.

The U.K. also owns 72 percent of Royal Bank of Scotland Group Plc. Shares of that lender fell 2.8 percent to 180.4 pence, less than half the government’s break-even price of 407 pence. Hammond said Friday that it’s not practical to try to sell RBS shares now.

Friday’s move comes in the same week that the government restarted the sale of as much as 15.7 billion pounds of Bradford & Bingley mortgages held since the financial crisis. U.K. Asset Resolution Ltd., the body managing Britain’s fully nationalized banks, is sending non-disclosure agreements to prospective buyers, people with knowledge of the matter have said.

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