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TSB float values bank at £1.3bn as Lloyds sells 35% off TSB shares jump on trading debut and lift prospects for future Lloyds sell-off
(about 7 hours later)
Lloyds Banking Group has priced its high street banking offshoot TSB at £1.3bn – less than its own value for the network of 631 branches. Shares in TSB, the offshoot of Lloyds Banking Group, jumped on their debut on Friday after the state-owned bank priced the 631 branches at £1.3bn.
Even so, António Horta-Osório, chief executive of the 24% taxpayer owned bank, described the sale of the shares to City investors and 60,000 retail investors as successful . The TSB shares were priced by Lloyds at 260p each but they surged to 300p before closing at 290p in the first opportunity for City investors to trade.
The shares were priced at 260p but in the first opportunity for City investors to trade the shares they had surged to 290p, pushing the valuation of TSB up to just over £1.4bn. The TSB branches have to be spun off because of the requirements imposed on Lloyds by the EU at the time of its £20bn taxpayer bailout in 2008. They were supposed to have been sold by now but the botched attempt to sell them to the Co-operative Bank delayed the process.
A larger-than-expected tranche of shares – some 35% rather than 25% of Lloyds' holding – is being floated on the stock market in what will be the first of as many as three other sell-offs of the shares. The retail investors who bought in during the flotation process will be able to trade for the first time next week. Lloyds floated a larger-than-expected tranche of shares – 35% rather than 25% of its holding – on the stock market in what will be the first of many sell-offs as it prepares to meet the EU demand to dispose of the TSB unit entirely. The 60,000 retail investors who bought in during the flotation process will be able to trade for the first time next week.
The TSB branches had to be spun off because of the requirements imposed on Lloyds at the time of its £20bn taxpayer bailout in 2008. They were supposed to have been sold by now but the botched attempt to sell them to the Co-operative Bank to create a 1,000 strong branch network delayed the process. The shares were priced "to go" as Lloyds' internal valuation of TSB is £1.6bn. For Lloyds, though, the sell-off is further evidence of a return to normality with expectations that the government can part with the rest of its 24% stake in the group – down from 43% – before the May 2015 general election.
Following the collapse of that deal shortly before a £1.5bn capital shortfall was uncovered at the Co-op bank, Lloyds created the TSB network on the high street. Even after the sale, Lloyds and TSB will remain linked though 10 years over IT systems. There were suggestions that Lloyds would sell off a larger than expected tranche of shares because of Mark Carney's warning that interest rates could rise earlier than expected. The remarks by the Bank of England governor are regarded as helpful for TSB as it could be more profitable in the future if rates rise off their 0.5% historic lows.
For Lloyds, though, the sell off is further evidence that it can return to the private sector after the government has already reduced its stake from 43%. Another sale of Lloyds shares - including to the public - is expected before the May 2015 general election. Paul Pester, the boss of TSB, said retail investors made up 30% of buyers, whose appetite for bank shares is being tested before a promised sell-off of Lloyds to the public. "It shows there is real appetite for a different kind of bank – a high street bank, not a Wall Street bank – which is focused on customer service," Pester said.
There were suggestions that Lloyds could sell off a larger than expected tranche of shares because of Mark Carney's warning that interest rates could rise earlier than expected. The remarks by the Bank of England governor are regarded as helpful for TSB as it could be more profitable in the future if rates rise off their 0.5% historic lows. The government will see the steps towards a standalone TSB as a way to improve competition on the high street – where Lloyds shares market dominance with Royal Bank of Scotland, HSBC and Barclays . The current account market is the one which has traditionally been hardest to wrest from the "big four". TSB is offering an account with a 5% rate of interest while players such as Tesco Bank are also entering the current account market for the first time.
"The successful initial public offering of TSB is an important further step for Lloyds Banking Group as we act to meet our commitments to the European commission. The significant investor demand for shares in TSB, which reflects investors' confidence in the prospects for the business, has meant that we have been able to set the offer size at 35%," said Horta-Osório. TSB is valued at around £1.6bn by Lloyds which has spent a similar amount creating the network.
Paul Pester, the boss of TSB, pointed out that retail investors made up 30% of the buyers, whose appetite for bank shares is being tested ahead of sell-off of Lloyds to the public. Paul Simmonds, from Warwick Business School, said: "The government is keen to have more competition in high street banking but is there enough room for all the new banks?"
"It shows there is real appetite for a different kind of bank – a high street bank, not a Wall Street bank – which is focused on customer service," Pester said. Lloyds said the offer for TSB shares had been 10 times oversubscribed. Stockbroker Hargreaves Lansdown said Lloyds had scaled back applications from retail investors. "Investors applying for up to £2,000 of shares received their full amount, rounded down to the nearest whole share (769 shares corresponding to £1,999.40). Applications for more than £2,000 of shares will receive 769 shares plus 30% of the excess amount, rounded down to the nearest whole share," said Richard Hunter, head of equities,at Hargreaves Lansdown.
The government will see the steps towards a standalone TSB as a way to improve competition on the high street – where Lloyds along with Royal Bank of Scotland, HSBC and Barclays are the dominant players. While the new network of branches will not be as large as if the Co-op deal had been complete, the TSB network is being set up as other players step up their offerings of current accounts, including Tesco Bank.
The current account market is the one which has traditionally been hardest to wrest from the "big four" and TSB is offering an account with 5% rate of interest. TSB is valued at around £1.6bn by Lloyds which has spent a similar amount creating the network.
RBS also has to sell off branches under the terms of its £45bn bailout but is also behind schedule and yet to hang Williams and Glyn signs over 315 branches it is selling.
Lloyds said the offer for TSB shares had been 10 times overscribed. Stock broker Hargreaves Lansdown said Lloyds had scaled back applications from retail investors. "Investors applying for up to £2,000 of shares received their full amount, rounded down to the nearest whole share (769 shares corresponding to £1,999.40). Applications for more than £2,000 of shares will receive 769 shares plus 30% of the excess amount, rounded down to the nearest whole share," said Richard Hunter, head of equities, Hargreaves Lansdown.