Photographer: Chris Ratcliffe/Bloomberg

Lloyds Bailout Nets U.K. $1.2 Billion as Government Exits

  • Bank was bailed out in the darkest moments of financial crisis
  • Chairman says there is more work to do to transform lender

The U.K. government sold its last remaining shares in Lloyds Banking Group Plc, bringing Britain’s biggest mortgage lender back into full private ownership almost a decade after it was bailed out in the depths of the financial crisis.

The Treasury made a profit of 894 million pounds ($1.2 billion) on its original 20.3 billion-pound investment after disposing of its final 0.25 percent in the bank over recent days, Lloyds said in a statement on Wednesday. The London-based lender said the sale marked the final step in its turnaround, although more work is required.

Antonio Horta-Osorio says there’s still ‘much more to do’ when asked if he plans to stay on as Lloyds CEO.

Source: Bloomberg

The bank’s return to full independence follows efforts by Chief Executive Officer Antonio Horta-Osorio to restore the lender’s profitability and financial strength and is a symbolic moment for Prime Minister Theresa May as she pushes to win a bigger mandate from British voters next month. Still, the U.K. still owns more than 70 percent of Royal Bank of Scotland Group Plc and will probably make a loss on its stake on that lender when it’s divested.

“There’s always more to do and we have lots of plans for the future,” Horta-Osorio said in an interview on Bloomberg TV. The CEO said he’s “very happy at Lloyds, very committed to the bank” and will start preparing a fresh strategy in July to be presented to investors at the beginning of next year.

Lloyds was up 2.2 percent at 71.70 pence at 10:15 a.m. in London, bringing the increase for the year to about 15 percent.

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The government, which at one point owned 43 percent of the bank, has gradually sold shares to investors through a trading program run by Morgan Stanley announced in December 2014. BlackRock Inc., the world’s largest asset manager, replaced the government as Lloyds’s biggest investor in January.

“It has been a long road since the government made its 20.3 billion-pound ‘investment,”’ Ian Gordon, an analyst at Investec Bank Plc, said in a note to investors this week. “The removal of a technical drag from the sale of up to 15 percent of the average daily volume is positive,” he said, referring to shares that had been sold under the trading plan.

Although the government ultimately made a profit, including 400 million pounds from dividend payments, the funds used for the capital injection in 2009 could have been deployed elsewhere. The U.K. had little option but to rescue the lender, which needed most of the bailout because of its government-assisted takeover of HBOS Plc. Six years since the depths of the credit crisis, when the bank was reliant on short-term wholesale market funding and had more than 200 billion pounds of toxic assets, the lender now has zero net debt, according to Horta-Osorio.

“Taxpayers’ money was used as it was a major crisis, but taxpayers’ money should not be used to bail out banks. The government did well in selling their shares,” he said.

Strategy Update

Lloyds is growing net profits as charges for past misconduct abate. Horta-Osorio’s help in returning the bank to full private-ownership didn’t come without bumps in the road. He was the first U.K. banking leader to begin offering compensation to customers who were wrongly sold payment protection insurance, resulting in more than 17 billion pounds of charges for the bank.

Although the CEO said that exiting the government stake is a “big milestone,” he added that he must now complete the acquisition of the MBNA credit card business Lloyds agreed to buy from Bank of America Corp. at the end of last year; deliver the synergies he promised from the deal; and invest in technology across the bank to boost profitability.

Attention at Lloyds will now turn to succession planning for the eventual departure of Horta-Osorio, one of the longest-serving bank CEOs in Europe. Although he reiterated that he’s happy at the bank, there has been persistent speculation over his future at Lloyds as the bank prepares a fresh three-year strategy.

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