Osborne Launches Â£3bn Lloyds Share Sale

By Mark Kleinman, City Editor

George Osborne has kicked off the long-awaited sale of the Government's stake in Lloyds Banking Group with a share placing that could raise around £3bn.

The move, announced after the stock market closed on Monday, begins a lengthy process to rid the taxpayer of the direct interest in the big listed banks acquired during the 2008 financial crisis.

Under the Chancellor's plans, a group of investment banks will identify demand among institutional investors for about 6% of Lloyds shares, reducing the Government's stake from just under 39% to roughly 32%.

A Treasury spokesman said: "UK Financial Investments (UKFI) today advised the Chancellor it would be appropriate to begin the process to sell part of the Government's shareholding in the Lloyds Banking Group. The Chancellor agrees with that advice and has authorised the process to begin.

"The Chancellor set out the government's objectives for its shareholdings in the banks at the Mansion House address earlier this year. We want to get the best value for the taxpayer, maximise support for the economy and restore them to private ownership. The Government will only conclude a sale if these objectives are met."

Bankers said demand for the Lloyds stock, which closed on Monday at 77.36p, was "brisk" in the minutes following the Treasury's announcement.

The bank's shares have soared by more than 95% during the last year, potentially allowing Mr Osborne to realise a profit on the sale even after a modest discount to the current share price is factored in.

In a separate announcement, UKFI declined to disclose the price at which it would place the stock, saying that it would be "determined by way of an accelerated bookbuilding process. The book will open with immediate effect following this announcement."

The price of any Government placing of Lloyds shares will be crucial to Mr Osborne's presentation of a sale. The last Labour government paid an average market price of 73.6p for the stake, and while an imminent placing may not take place above that level, it would be possible to do so for a price well in excess of the 61p at which the stake is recorded in the national accounts.

It added that UKFI and HM Treasury had undertaken "not to sell further shares in the Company for a period of 90 calendar days following the completion of the Placing without the prior written consent of a majority" of the investment banks running the process.

That agreement effectively prevents the Government from selling further shares until the new year.

The banks working on the sale will earn millions of pounds from their role although one said it would be paid "much less than the market rate".

The Treasury's announcement comes days after the Office of Fair Trading said it would not require Lloyds to make significant enhancements to a package of 631 branches it has to sell under European state aid rules.

Sky News revealed last week that the OFT verdict removed the last remaining obstacle to a sale of the Government's Lloyds stake.

The announcement is the second major public sector sell-off to be announced in five days, following last week's confirmation of the £3bn privatisation of Royal Mail.

While the Government has already offloaded Northern Rock back to the private sector, the sale of the Lloyds shareholding is important symbolically.

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