UK Treasury sells down stake in Lloyds after poll boost

The UK government has capitalised on a recent rally in Lloyds Banking Group shares to sell down its stake in the bank below 20 per cent in a move likely to be announced this week.

The victory of David Cameron's Conservative party in last week's election gave Lloyds shares a boost of almost 6 per cent on Friday. They had already risen sharply after the bank reported strong quarterly profits a week earlier.

The Treasury is expected to say as early as this week that it has taken advantage of the positive market conditions to lower its stake in the bank from 21 per cent to below 20 per cent, according to two people familiar with the situation.

The move raises about £600m for the taxpayer. It means the government has sold more than half the 41 per cent stake in Lloyds it received in return for a £20bn bailout during the financial crisis.

A programme to drip-feed Lloyds shares into the market was unveiled at the end of last year and is due to finish in June. It has lowered the government's stake from 25 per cent in December and raised about £3bn for the taxpayer.

George Osborne, UK finance minister, promised a £9bn Lloyds share sale in his March budget. He said last month that £4bn of this would be sold to retail investors in the style of 1980s privatisations, including British Gas with its "Tell Sid" adverts.

However, UK Financial Investments, the body that manages the government's banking stakes, is considering another drip-feeding of shares over a six-month period before launching a public sale of its remaining stake early next year.

The Conservative victory paves the way for the government to begin offloading its 80 per cent holding in Royal Bank of Scotland. Mr Osborne told the FT Weekend magazine in March he wanted to "get rid" of the stake "as quickly as we can". A review will start in the summer.

A senior figure at RBS said the government could launch a share sale in the fourth quarter after the bank had completed settlements with US regulators for manipulating foreign exchange markets and mis-selling subprime mortgage securities.

RBS shares closed up 6 per cent on Friday at 352p but are still well below the 500p price at which the government bailed the bank out in 2008. Lloyds shares, in contrast, closed at 86.9p, well above the government's 73.6p break-even price.

The government is also in the process of offloading £13bn of mortgages in its biggest sale to date of assets acquired from the bailout of Northern Rock and Bradford & Bingley during the financial crisis.

UK Asset Resolution, the company tasked with disposing of the government's holdings in the defunct lenders, started the sale process of a £13bn securitised vehicle called "Granite" last month by issuing information memorandums to interested buyers, according to people familiar with the situation.

The sale could also include the potential divestment of UKAR's mortgage servicing division, upon which it becomes less dependent as its mortgage book shrinks.

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