The UK Treasury has sold another £500 million of shares in Lloyds. This equates to a one per cent stake in the bank, bringing the taxpayers' stake in the bailed-out bank to just under 12 per cent, which is worth £6.3 billion at current market prices.
Investment bankers at Morgan Stanley have been selling off the shares on behalf of UK Financial Investments – a state-agency responsible for managing the shareholdings in the bailed out banks for the Treasury.
Shares are released onto the stock market when they can be sold above the break-even price of 73.6 pence. Earlier this year, shares in Lloyds were trading as high as 89 pence per share – and due to the high market value, Morgan Stanley sold a one per cent stake roughly every ten days. That resulted in a "tidy profit for taxpayers," reports the Telegraph.
However, the pace of the sell-off has slowed since August. This is due to trading volumes in the market being lower – so investment bankers are trying to avoid swamping the market with stock. In addition, the value of Lloyds shares have also dropped.
Late in August, the price dropped below the threshold price of 73.60 pence, meaning that the Treasury would not sell the stock. Currently, the shares are trading at 73.8p – this is just above the break-even price.
Commenting on the price of Lloyds shares, Analyst James Chappell said he believes the current value is not sustainable.
He told the Telegraph that shares could fall to around 55 pence and explains that investors' expectations of three per cent revenue growth in each of the next three years is unlikely to be achieved. He added that PPI compensation costs are unlikely to come to an end in the near future.
Chancellor George Osborne said it was "fantastic news" that more shares in Lloyds had been sold, noting that £15 billion had been recovered for taxpayers.
"I am determined to build on this success, and to continue to return Lloyds to the private sector and reduce our national debt," he added.
StoneX Financial Ltd (trading as “City Index”) is an execution-only service provider. This material, whether or not it states any opinions, is for general information purposes only and it does not take into account your personal circumstances or objectives. This material has been prepared using the thoughts and opinions of the author and these may change. However, City Index does not plan to provide further updates to any material once published and it is not under any obligation to keep this material up to date. This material is short term in nature and may only relate to facts and circumstances existing at a specific time or day. Nothing in this material is (or should be considered to be) financial, investment, legal, tax or other advice and no reliance should be placed on it.
No opinion given in this material constitutes a recommendation by City Index or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although City Index is not specifically prevented from dealing before providing this material, City Index does not seek to take advantage of the material prior to its dissemination. This material is not intended for distribution to, or use by, any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation.