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JP Morgan Cazenove to advise on sale of RBS and Lloyds Adviser shortlist brings sale of UK stakes in RBS and Lloyds a step closer
(about 5 hours later)
The government moved a step closer to selling off its stakes in the bailed-out banks with the appointment of JP Morgan Cazenoze to advise on the possible sell-off of shares in Lloyds Banking Group and Royal Bank of Scotland. More than 30 City banks have been put on standby to advise and help the government with the return of Lloyds Banking group and Royal Bank of Scotland to the private sector.
The appointment of JP Morgan Cazenove was made by UK Financial Investments, which looks after the stakes in the bailed-out banks. It is part of a process to line up banks ready to stand behind any sale of the 39% stake in Lloyds and the 81% stake in RBS. JP Morgan Cazenove has landed the role of lead adviser on the possible sell-off of the stakes in the bailed-out banks, which for Lloyds could begin next month.
UKFI put more than 30 banks on a shortlist to be called upon once the decision to sell has been made, in move that risks alienating City investors. The appointments were made by UK Financial Investments (UKFI), which looks after the stakes. It is the start of a process to line up banks ready to stand behind any sale of the 39% stake in Lloyds and the 81% stake in RBS.
"You don't need that amount of banks," said one investor. "People perceive you are trying to overly manage the process rather than let the open markets decide," the investor said. UKFI's decision to put so many banks on its roster, to be called upon once the decision to sell has been made, risks alienating City investors.
Last week the investor body the Association of British Insurers said that a smaller number of banks – perhaps as few as three – should be involved in syndicates set up to sell off stakes in companies. This would allow those banks not involved to provide research to potential investors. "You don't need that amount of banks," said one investor. "People perceive you are trying to overly manage the process rather than let the open markets decide."
JP Morgan Cazenoze, the US-owned City firm, will waive any fee for the advice it provides on selling down the stakes in the banks. JP Morgan Cazenove, created when the US bank JP Morgan bought the traditional City firm Cazenove a decade ago, was also a key advisor to the government during the depths of the 2008 banking crisis when £65bn of taxpayer money was used to buy shares in both banks to stop them collapsing. Major City investors get concerned when large numbers of banks are lined up to advise on deals as its pushes up the fees paid and restricts the variety of research they receive on the stocks.
The banks on the shortlist for the key role of bookrunner – in charge of co-ordinating the sale – are Bank of America Merrill Lynch, Barclays, Citi, Credit Suisse, Deutsche Bank, Goldman Sachs, HSBC, JP Morgan, Morgan Stanley, Nomura and UBS, the Swiss bank which already acts as broker to both RBS and Lloyds. Other banks have been lined up more with more junior roles. Last week the investor body the Association of British Insurers said that only a small number of banks – perhaps as few as three – should be involved in running the syndicates set up to sell off stakes in companies.
While the City has been watching the share price of the banks for a signal when the sell-off might begin, UKFI said earlier this week that the prices would not be used as gauge to decide whether a sale was value for money for the taxpayer. Instead it said it would look at each bank's future earning prospects and review the total price received for the share sales and not just the first tranche sold off. Among the banks named, UKFI has selected 11 so-called bookrunners – who are in charge of co-ordinating the sale – although it may not appoint them all when a sale begins.
A sell-off of Lloyds is regarded as being closer than a sale of RBS as the government has appointed Rothschild to provide advice on transferring RBS's troubled assets into a bad bank. Rothschild is receiving a fee of £850,000 while legal advice is being sought from Slaughter & May, the law firm involved in the 2008 bank bailouts, which will charge for its time by the hour. The Lloyd sell-off could start after it publishes its interim results on 1 August. JP Morgan Cazenove, the US-owned City firm where the former prime minister Tony Blair is an adviser, will waive any fee for the advice it provides on selling down the stakes in the banks.
UKFI chief executive, Jim O'Neil, recused himself from the selection process of the roster of banks as he preparing to move to Bank of America Merrill Lynch this year. His successor is expected to be named shortly. The bank, created when the US bank JP Morgan bought the traditional City firm Cazenove, was also a key adviser to the government during the depths of the 2008 banking crisis when £65bn of taxpayer money was used to buy shares in both banks to stop them collapsing.
The banks on the list of possible bookrunners are Bank of America Merrill Lynch, Barclays, Citi, Credit Suisse, Deutsche Bank, Goldman Sachs, HSBC, JP Morgan, Morgan Stanley, Nomura and UBS, the Swiss bank which already acts as broker to both RBS and Lloyds.
These banks, along with others, are also included in listings for more junior roles of co-lead manager, capital markets adviser, and financial and/or strategic adviser.
The banks will be picked from the list at short notice once the decision to begin the sell-off is taken. The sale of between 5% and 10% of Lloyds could start after the bank publishes its interim results on 1 August.
According to the chancellor, George Osborne, it is most likely to take the form of a sale of a chunk of shares to institutional investors before a later offering to retail investors.
A sale of RBS is thought to be further off as the government has appointed Rothschild to provide advice on transferring its troubled loans into a bad bank. Rothschild is receiving a fee of £850,000 while legal advisers at Slaughter & May, the law firm involved in the 2008 bank bailouts, will charge by the hour.
The City has been watching the share price of the banks for a signal when the sell-off might begin, but UKFI said this week that the prices would not be used as gauge to decide whether a sale was value for money for the taxpayer.
Instead UKFI said it would look at each bank's future earning prospects and review the total price received for the share sales and not just the first tranche sold off.
Lloyds shares closed at 69p – below the 73.6p average that the taxpayer paid but above the 61p at which the boss António Horta-Osório can start to claim his bonus if the shares are sold off. RBS shares closed at 337p, below the 500p average price the stake was bought by the taxpayer.
A replacement for UKFI chief executive, Jim O'Neil, who recused himself from the selection process of the roster of banks as he is preparing to move to Bank of America Merrill Lynch this year, is expected to be named shortly.
Among those in the frame is Robert Hingley, the former banker who is currently head of investments at the ABI.