Lloyds presents Osborne with a dilemma – is it time to return the bank to private hands?
As Lloyds shares pass their true break-even point of 73.6p, is it now time for chancellor George Osborne to return the bank to private hands?
Mike van Dulken, head of research at Accendo Markets:
he turnaround is working and profits have returned. Another 30 days at/above 73.6p, or a 1/3 stake sale >61p, and the CEO gets his 2012 bonus. Reasons for the government avoiding an immediate sale include potential competition from Barclays’ rights issue in September (although a portion could be placed with institutions), using share price momentum (+200% from end-May 2012, +56% YTD) to get maximum value for UK taxpayers as well as holding off until closer to the 2015 election campaign.
On the flip-side, at what point is the UK pushing EU state-aid rules by not exiting its position after almost 5yrs even though the bank has shown it can hold its own and should really be back in the hands of the loyal public who want their dividends back?
From today's Morning Wire debate:
Steve Davies, co-manager of the Jupiter UK Growth Fund:
The government should return Lloyds bank to the private sector sooner rather than later. Very simply, the demand is there. Investors are increasingly recognising the improving strength of the UK economy and Lloyds is well-positioned to benefit from this. As such, the government should be able to sell its stake in stages over the next 18 months, and in such a way that taxpayers actually make a profit on the original investment.
Lloyds has finished the bulk of its deleveraging, and is ready to grow its loan book again in support of the UK economy. It is surely preferable that Lloyds can do this on the basis that it makes good business sense, rather than because it is under pressure from the government. Finally, Lloyds has made huge strides in strengthening its capital base to the point that it should be better able to withstand the sorts of conditions we saw in 2008 – without requiring taxpayer support.
Andrew Freeman, director of Demos Finance:
It is welcome news that Lloyds’ share price has finally returned to the level at which the government bought into the bank, but that should not prompt a rush to offload the entire stake. The government has already said it does not want to be hurried into a sale, mindful that it needs to protect shareholders’ interests. I hope this is the case.
The government has an opportunity to ensure that, not only does it get its money back for taxpayers, but also that Lloyds is making an effective contribution to an improved banking sector. This means re-privatising Lloyds only when it is less risky as a whole, having completely cleared out all its bad debts, and is contributing more actively towards economic growth through lending. In particular, active consideration needs to be given over the question of how far the public is actually able to purchase shares in the bank. There is no reason for a firesale.