News Column

Small investors to be offered free shares as Lloyds confirms TSB will float in June

May 28, 2014

Julia Kollewe

Lloyds Banking Group is floating 25% of its TSB subsidiary next month, with up to a fifth of the shares expected to be snapped up by retail investors.

To entice small shareholders, Lloyds is offering one free share for every 20 bought up to pounds 2,000 if they are held for a year. TSB will not, however, pay dividends until 2017, which is likely to affect the group's valuation. Chief executive Paul Pester said the cash would be used to fund expansion. "We intend to invest every penny we can in retail growth," he said.

Lloyds will sell a 25% stake in TSB initially and has to sell the rest by the end of 2015 in line with EU rules linked to the terms of the bank's government bailout in 2008. Shares are likely to be priced at less than TSB's book value of pounds 1.5bn.

After an abortive attempt to sell off its TSB branches to the Co-operative Group last year, Lloyds will take its chances with an IPO market that has seen a flurry of debuts this year, but has recently shown signs of flotation fatigue. Last week Saga, the over-50s holidays and insurance group, made a disappointing debut, launching its shares at the bottom end of the price range in response to weaker than expected demand. The clothing chain Fat Face ditched its plans to float.

Sandy Chen at Cenkos Securities said: "TSB's IPO might price at a significant discount to book. Our concerns centre on profitability, both current and future."

The bank has held two rounds of investor meetings this year to drum up interest and believes there is good demand, particularly from the US and south-east Asia. "There is a strong, good appetite for TSB," Pester said. "What's attracting investors is the simple straight forward banking model, a high street not a Wall Street bank, and it's protected from the past."

Lloyds' chief executive, Antonio Horta-Osorio, has promised TSB will be a "real challenger on the high street", describing it as a completely clean bank, untainted by the financial crisis. TSB has an indemnity from Lloyds against future misconduct charges relating to legacy issues such as the mis-selling of payment protection insurance. Lloyds has paid out billions of pounds to people who were mis-sold PPI.

The prospectus for the sell-off will be published in mid-June, and Pester has already said that TSB would not pay a dividend until 2017.

Michael Hewson, the chief market analyst at CMC Markets UK, said the TSB IPO could be a "float too far".

"The initial valuation has been set at around pounds 1.5bn, but could well be less given that the appetite for IPOs appears to be showing some signs of waning or summer fatigue," he said, noting that of the IPOs launched this year only Poundland remains above its float price.

Matthew Beesley, head of global equities at Henderson, said: "The promise of bonus shares for loyal shareholders tells you of their need to build a following, especially with so much banking issuance to come in the next few years. As well as more tranches of TSB, the government is set to sell its remaining 25% of Lloyds before the election in 12 months' time.

"Then there is RBS, with their own stake sales and the forced divestiture of their Williams & Glyn branches . . . At least TSB has the advantage of going first."


The number of shares small investors will have to buy to get one free. They will also have to hold their shares for at least a year

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Source: Guardian (UK)

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