Sale of Lloyds Banking Group shares ‘value for money’ despite £230m shortfall

The National Audit Office (NAO) has described the first sale of government shares in the Lloyds Banking Group as being “managed effectively” and providing “value for money”. 

However, when the cost of borrowing the money to buy the shares is taken into account, there is a shortfall for the taxpayer of at least £230 million. The NAO said, “This shortfall should be seen as part of the cost of securing the benefits of financial stability during the financial crisis, rather than any reflection on the sale process.”

The Treasury sold a 6% stake in the banking group in September, a deal that bought in £61 million. The transaction leaves the government with a 32.7% stake in Lloyds. Further sales are expected in the coming years.

Sajid Javid, financial secretary to the Treasury, said, “The proceeds from the sale have reduced the national debt by over half a billion pounds but, as the NAO also rightly points out, the country has had to pay a high price for the extra debt it has taken on because of the financial crisis.”

UK Financial Investment (UKFI), which managed the sale, set the share price at 75p a share, a 3% discount to the closing market price ahead of the offer. The shares were only sold to institutional investors in order to minimise risk.

The NAO noted that demand from institutional investors exceeded the number of shares on offer by some 2.8 times. However, the organisation added that pricing the shares higher would have required allocating more than 60% of the shares to short-term investors, which could lead to a weak aftermarket and negatively impact on future sales.

Amyas Morse, head of the NAO, said, “The programme of sales of the taxpayers’ holding of bank shares has got off to a good start. Sale options were reviewed thoroughly and UKFI look to have got its timing right.

“The sale took places when the shares were trading close to a 12-month high and at the upper end of estimates for the fair value of business. Furthermore, the share price in trading after sale has remained steady.”

Last week the Financial Conduct Authority (FCA) announced that Lloyds had been dealt a £28 million fine for an irresponsible sales culture because of ‘serious failings’ in its control of sales incentives.

Back in March the bank faced criticism over bonuses and mis-selling payment protection insurance, after it revealed a £570 million annual loss for 2012.

Further reading:

Banking system remains risky and uncompetitive, research finds

Banking regulator deals Lloyds record £28m fine for irresponsible sales culture

Lloyds Bank sells remaining stake in St James’s Place

Aberdeen signs deal to buy SWIP from Lloyds Banking Group

Lloyds Bank sets aside further £750m for PPI claims