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What you need to know about the TSB sell-off: Shares Thinking of trying your luck when the bank is floated later this month? Hilary Osborne looks at the key issues for anyone who is interested in investing

June 14, 2014

Hilary Osborne



Exactly how much shares in TSB will make when they go on sale later this month is still unclear, but its parent company, Lloyds Banking Group, has announced a price range of between 220p and 290p. So should you take the plunge and buy some? Here we answer questions about the share offer.

Why is Lloyds selling the shares?

During the financial crisis Lloyds Banking Group received a bail-out from the government and, under European Union rules on state aid, it was obliged to slim down its operation. This meant carving up its branch network. It originally planned to sell to the Co-op, but after that fell through, it set up the stand-alone TSB bank.

Lloyds now needs to sell that, and is doing so through a float. The initial public offering (IPO) will sell off 25%, but Lloyds has to offload the remaining 75% by the end of 2015.

How many shares can I buy?

You must spend at least pounds 750, as with the Royal Mail IPO, but unlike that offer there is no upper limit on how many you can bid for. At the mid-price range of 255p you would get 294 for pounds 750. If it is over-subscribed, which is unlikely, you might not get the amount requested.

Private investors who buy shares and hold on to them for a year will get one free share for every 20 they bought, up to a maximum of pounds 2,000.

Where can I buy?

The bank cannot sell the shares itself - you have to apply through one of the stockbrokers or sharedealing services acting as "intermediaries", including well-known names such as Hargreaves Lansdown and The Share Centre.

You need to be quick because the offer is expected to close on Tuesday

17 June (it's possible some intermediaries may bring the shutters down before that). The price will be announced on Friday 20 June and dealing will start the same day.

A list of intermediaries is on the TSB website - go to tsbshareoffer.equiniti.com/homepage.aspx. Don't forget to find out about any fees they will charge.

Why should I buy?

Unlike other banks, TSB has no legacy issues with mis-selling or other scandals that could cost it money through fines from the regulator - Lloyds will keep all the liability for things such as PPI mis-selling.

The bank has 4.5 million customers already and has room to grow. Of its 631 branches, around 160 used to belong to Cheltenham & Gloucester and did not sell current accounts; now it expects to be able to increase its share of this market. It has also been out of the broker market for mortgages - which is estimated to account for around 40% of home loans sold - and plans to re-enter in 2015.

Why shouldn't I buy?

Setting up the separate bank has cost money, and winning new business could mean small margins, say analysts. Lloyds has another 75% of the business to sell off in the next 18 months, meaning that the supply of shares will be high and the price could fall.

The head of TSB, Paul Pester, has said investors need to be prepared to hold the shares as a long-term investment. TSB made profits of pounds 172m last year but does not expect to be generating enough surplus to pay dividends until the end of the 2017 financial year.

Meanwhile, some might be concerned by the revelation that 45% of its mortgage customers have interest-only mortgages, and that it does not know how some intend to repay their loans.

John Blowers, at private investor website Trustnet Direct, said some of what was in the prospectus was "encouraging", but he added: "Investors should be mindful that market valuations are currently very high, and if we see a wholesale sell-off, TSB shares will likely get caught up in the move lower, along with every other stock.

"What's more, the company is being sold on the prospects of relatively modest growth going forward. IPOs may offer investors some good reasons to buy equity, but this should always be part of a broader investment strategy."

Captions:

What are the signs? The stand-alone TSB, which boasts 4.5 million customers, has no legacy issues and there's room to grow


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Source: Guardian (UK)


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