Scramble for Lloyds stake paves the way for full sell-off

The Government has sold a 6% stake in Lloyds for £3.21 billion

The £3.2bn divestment, five years after Lloyds and rival Royal Bank of Scotland were bailed out at the height of the credit crunch with a combined £66bn of taxpayers’ cash, represents a milestone in the economy’s recovery from the financial crisis.

The shares were sold to unnamed investment institutions at 75p per share, a three per cent discount to Lloyds’ closing price on Monday.

Sources with direct knowledge of the transaction said it was 2.8 times covered by demand.

Given the level of investor appetite, said analyst Ian Gordon at Investec, the rest of the Lloyds shares could be sold by the next election.

By comparison, the United States sold $31.8bn worth of shares in Citigroup over a nine-month period in 2010.

“We regard the Government’s timing as impeccable and it appears credible to suggest that it could yet be out in full by the election,” Mr Gordon said.

Paras Anand, head of European equities at Fidelity Worldwide Investment, said: “Today’s placing is a clear sign of confidence that the bank is well on the road to recovery.”

The Treasury has agreed not to sell any more shares in the bank for 90 days and bankers and investors don’t expect a second sale until after Lloyds publishes its 2012 results next March.

A sale of shares in RBS is seen as much further away, with the shares still trading at 28 per cent below the Government’s average buy-in price – meaning that taxpayers are sitting on a loss of £13bn.

The outlook for RBS is further complicated by the Government’s decision to hire investment bank Rothschild to examine whether the bank should be broken up. A decision is expected later in the autumn.

The Lloyds sale is the biggest equity capital markets deal in Europe this year and the proceeds are also greater than the expected £2bn-£3bn which Britain is expected to raise from the sale of Royal Mail.

Sources with direct knowledge of the transaction said the biggest block of investors were British, but there was also good demand from the United States, Asia and Europe, with investors seeing the stock as a play on the UK economic recovery.