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Government raises £3.2 billion from Lloyds share sale
Sale of 6% state stake in Lloyds provides a 'clear sign of confidence that the bank is well on the road to recovery,' says Fidelity fund manager.
The return of the taxpayer share in Lloyds Banking Group (LLOY.L) to private hands has finally begun, with the government announcing that it has raised £3.2 billion from the sale of a 6% stake in the bank that it bailed out five years ago.
UK Financial Investments, the agency responsible for managing the state’s interest in bailed out banks, confirmed in an announcement to the London Stock Exchange that the stake sale to institutional investors had been 'successfully completed'.
Around 27.6 million shares were sold off at 75p per share – a 3.1% discount to last night's closing price – boosting the government's coffers by approximately £3.2 billion. The disposal reduces its stake in the lender to 32.7%.
Chancellor George Osborne said: ‘That is a profit for taxpayers, and rightly so. The money will be used to reduce the national debt by over half a billion pounds.’
The sale is widely seen as a major milestone in the UK economic recovery after the government was forced to bailout the bank at the height of the credit crunch exactly five years ago.
Shares in Lloyds dropped on Tuesday morning, down 1.7% at 76p, as investors weighed up whether the shares were still good value after gaining 93% over the past year. The next stake sale will reportedly make shares available to retail investors.
Fidelity Worldwide Investment European equity head and Lloyds investor Paras Anand underlined the significance of the move.
‘[The] placing is a clear sign of confidence that the bank is well on the road to recovery. Under current management, the bank is a substantially less complex business, and is today centred around strong franchises in retail and corporate lending.’ Anand said in a statement.
He also sees it as a possible precursor to the resumption of dividends at the bank.
‘The focus on selling non-core businesses as well as cost reduction has improved the bank’s capital position to a point that it could return to distributing dividends to shareholders in the medium term.
‘Whilst we expect regulatory uncertainty to hang over the sector, Lloyds should be in a position to deliver a good level of shareholder returns looking forward.’
Others were less enthusiastic about the outlook for the shares.
Investec Securities bank analyst Ian Gordon repeated his 'sell' rating on the stock, highlighting that its valuation is close to a five-year high after its share price more than doubled since last June.
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