17th September 2013
So small UK investors haven’t had the chance to pick up shares in the £3.21bn tranche of Lloyds Bank which has returned to institutional investors’ hands overnight. Six per cent more of the bank is in the hands of institutional investors. It is now around 32.7% of the combined Lloyds and HBoS group that remains state backed. In the process, it makes RBS look and feel like even more of a laggard. The shares went for 75p.
Actually given that investors can pick up other Lloyds shares on the open market for a not dissimilar price – just over 2p more on last night’s closing price – it is hardly a blow and certainly not for a small investor with a medium or long term time horizon. Small investors are not being left out party or not really.
Some individuals may find they have increased exposure anyway when it becomes clear which among the UK’s pension funds, insurance companies and fund managers have participated.
However, with Lloyds at least, what the government has decided not to do is to offer shares to the public at large. There is to be no British Gas-style ‘Tell Sid’ campaign for this tranche of bank shares at least.
Perhaps it was felt that the public was too jaundiced about banks, though on some measures, a reformed, rebooted Lloyds shareholding looks and feels like a more reliable investment for mass long term ownership – than those of the Royal Mail given the extraordinary competitive pressures and potential for creative destruction the national post carrier faces.
Nor has the Government opted to place such shares in a UK style Sovereign wealth fund, a strategy advocated by Justin Urquhart Stewart on Mindful Money in the summer.
The most compelling reason, we suspect, is that Government wants to be able to say that it is making progress in the cleaning up the banking crisis and this is certainly a quick win.
Interestingly, the Telegraph reports interest from US investors and hedge funds which it deems a vote of confidence in the UK economy. That feels about right.
The other key issue, which will please ministers and taxpayers is that it looks like they are making a profit on this tranche. It’s a only small profit.
The Government bought the shares at 73.6p and has sold them at 75p so £61m in the ‘black’. That is obviously much better than a loss but most investors, retail, professional and institutional would have hoped to do a little better by investing elsewhere in the intervening period, especially one with depressed or non-existent dividends. (Actually, the future dividend policy may be one significant reason why the bank’s shares will look attractive in the coming years.)
Others may suggest that the money could have been better spent by the Government elsewhere or in shaving a little off the national debt, though that may happen now. Don’t expect it to move the gilt market.
Yet while the numbers involved are relatively small beer for markets, it may represent another small but not insignificant step in the return to normality for the economy, for the country and for Lloyds itself. We are on the way, but we have not arrived anywhere one could call normal, not just yet.