British Government to Delay Lloyds Banking Group PLC (LON: LLOY) Sale to Retail Investors

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By David Scouts on August 15, 2014 Company, Financial, Intl News

LONDON – Recently, the British government has decided to delay its decision of selling a portion of its remaining stake in the Lloyds Banking Groupto retail investors. It has been reported that this decision would not be implemented until the next general elections that are to be held in 2015.

According to insiders, the decision of retail offering has been delayed primarily because a negative impact on sales was feared due to geopolitical uncertainty and similar other issues. As a result, Lloyds’s stock price has dropped by almost 8 percent since the beginning of June. The shares of Lloyds were found to be only slightly up in London on Thursday; otherwise showing a decreasing overall trend.

Although the government has not completely eliminated the option of sale to institutional investors before the general elections next year, it is predicted that such a decision would be quite difficult to implement, given the logistical constraints during that time.

Even after carrying out two sales since last September, the British still government holds about a 25 percent stake in Lloyds. According to the Chancellor of the Exchequer, George Osborne, it is essential for the government to reduce its holdings not only in Lloyds but also in the Royal Bank of Scotland. Both of these banks received billions of pounds when the government bailed out amidst the financial crisis. In a speech, the chancellor clearly mentioned that the purpose is to maximize support for the British economy and at the same time get the best value for money for the taxpayer. Thus, value for money and market conditions will determine any decision of share sales.

Lloyd also plans to get permission for paying dividend to its shareholders and hence, the delay in sale of shares becomes necessary. According to an expert, after a complete dividend plan has been constructed, it would become easier to implement any decision of sale to retail investors.

Although Lloyds is earning profits as compared to before, it is still behind most of its competitors in Britain. Regulatory and legal problems have been two of the major hindrances preventing Lloyds from excelling.

During the first 6 months of the fiscal year, the profits of the bank declined to £574 million, witnessing a decline of nearly 63 percent. The major cause of this sharp decline was a number of regulatory and legal issues. Nearly £1.1 billion was spent on settlement to resolve the investigation by British and United States authorities claiming the manipulation of benchmark interest rates. Similarly, almost £600 million were used to compensate the customers for an improper sale of payment protection insurance. Not only Lloyds but several other British banks have had to pay billions of pounds due to this reason. Till now, Lloyds alone has paid more than £8 billion as a part of claims on the loan insurance.