UK to cut stake in Lloyds before election

UK chancellor of the exchequer George Osborne said his government will cut its stake in Lloyds banking group in the run-up to May's general election, pledging taxpayers won't lose money from the sale.

Mr Osborne said the government will “gradually” sell its stake over the next six months and promised the shares won’t be sold for less than the 73.6 pence the taxpayer paid during the bank’s bailout in 2008.

The UK will sell as much as 5 per cent of Lloyds for about £3 billion ($4.7 billion), a treasury official said.

Mr Osborne is seeking to convince voters his Conservative Party is best-placed to shepherd Britain’s recovery as polls show it remains neck-and-neck with Labour.

The previous Labour government bailed out Lloyds, the country's largest mortgage lender, at a cost of £20.5 billion, as well as Royal Bank of Scotland during the financial crisis.

The plan is “the next step in the government’s plan to return Lloyds to wholly private ownership,” Mr Osborne said.

“Shares will not be sold below the average price the taxpayer paid for them” as part of the plan to “get back for taxpayers the money they paid for banks,” he added.

Lloyds fell 1.6 per cent to 75.63 pence late on Wednesday afternoon in London. The shares have fallen 4.1 per cent this year, the second-best performance among Britain’s five biggest banks after RBS.

“It’s probably a better way of selling down the shares than a direct placing because it’s less disruptive to the share price,” said Joseph Dickerson, an analyst at Jefferies International in London . “It’s generally positive.”

Lloyds chief executive officer Antonio Horta-Osorio, 50, has sold assets and plans to cut £1 billion in costs and 9,000 jobs to revive earnings and bolster capital. After the lender passed the Bank of England's stress tests yesterday, analysts including Chirantan Barua at Sanford C. Bernstein have said it may be able to pay its first dividend since its bailout.

Morgan Stanley will manage the sale for the government, which owns about 25 per cent of Lloyds. The treasury has reduced its stake from 40 percent in two separate sales, raising about 7.4 billion pounds. Still, Osborne hasn't been able to cut the government's 80 per cent stake in RBS, which received a £45.5 billion rescue, the biggest bank bailout in history. RBS shares still trade for less than the government's 407 pence break-even price. The bank may take a decade to return the money, CEO Ross McEwan said in an interview with The Irish Times last week.

- Bloomberg