News Column

Late demand lifts TSB sale

June 20, 2014

By James Salmon, Daily Mail, London

June 20--Lloyds bosses have opted to float a bigger slice of spun-off lender TSB than expected to capitalise on a late surge in demand from retail and institutional investors.

The state-backed lender will offload 35pc of TSB today, rather than the 25pc it had originally earmarked.

Small investors will receive a larger chunk of shares, as Lloyds has increased the allocation for private shareholders to 30pc. Previously, it had planned to sell 20pc-25pc to ordinary retail investors.

The bank hopes to ensure as many private investors as possible receive pounds sterling 2,000 worth of shares, which will entitle them to one bonus share for every 20 purchased, provided they hang on to them for a year. It is also understood to have set a price of 260p per share, valuing the challenger bank at approximately pounds sterling 1.3bn.

The bold move was agreed by Lloyds bosses including chief executive Antonio Horta-Osorio, chairman Lord Blackwell and finance chief George Culmer at a crunch meeting last night.

A pounds sterling 1.3bn price tag would represent a discount of almost a fifth on TSB's notional 'book' value of around pounds sterling 1.6bn.

But many analysts expected Lloyds (down 0.26p to 77.4p) to sell the shares at a bigger discount to satisfy investors and ensure they are all snapped up.

There have been growing concerns of 'investor fatigue' as demand for new shares starts to flag after a spree of IPOs this year.

Lloyds initially set a price range of between 220p and 290p, but on Tuesday revised its range to between 250p and 270p.

Insiders said comments made by Bank of England governor Mark Carney last week that interest rates could rise sooner than expected have bolstered TSB's prospects and helped buoy demand for its shares.

This is because two-thirds of TSB's pounds sterling 17.7bn mortgage portfolio is made up of capped standard variable rate mortgages which generate a small profit margin for the lender. It reckons that the prospects of an imminent hike in interest rates will drive more customers to take out fixed-rate mortgages, which generate bigger profits.

Sources said that part of the rationale behind floating a bigger stake was to satisfy demand from retail investors.

Lloyds is anxious to avoid the controversy surrounding the Royal Mail float, when many retail investors could not buy shares as the retail offering was seven times over-subscribed.

But analysts last night warned moves by the Bank of England to curb risky lending could pour cold water on TSB's aggressive plans to grow its mortgage book. This includes powers to cap loan-to-income ratios of mortgages, preventing banks from dishing out risky loans of up to five times salary.

Gary Greenwood, an analyst from Shore Capital, said: 'We believe that the main risk to the company's mortgage growth strategy would be a material tightening of lending criteria by the Bank of England, which is becoming increasingly concerned about the impact that excessive house price inflation particularly in London and the South East could have on economic stability.' David Buik from broker Panmure Gordon said he was 'amazed' by the price tag for TSB, which is led by chief executive Paul Pester.

'We wish them good luck. Lloyds has obviously done its homework and there is clearly demand at this price. But we wouldn't buy at this level,' Buik added.

TSB, launched on the High Street in September, was formed out of 631 branches that Lloyds was forced by the European Commission to sell as a condition of its pounds sterling 20bn state bailout in 2008.


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Source: Daily Mail (London, England)

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