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The share price of Lloyds Banking Group (LSE:LLOY) declined by 2.88% at midday from its closing price yesterday of 77.36. The shares are currently trading at 75.13. This is not a bad thing, considering that the price is holding slightly above the 75 pence that institutional investors spent per share yesterday as the government sold off 6% of HM Treasury’s holdings that it acquired when the UK came to Lloyd’s rescue in the midst of the banking crisis.
Finance Minister George Osborne has long indicated that the government’s target price to lead Lloyds back to privatization would have to be at least 61 pence for the government to break even. On 30 April this year, following an excellent first quarter report, I had written that
“Clearing the 61.0 pence mark for Lloyds will be like qualifying for the finals in the 100 meters. It doesn’t mean that they have won, but it does mean that they have a chance to win. The 61.0 pence mark is more or less the “break even” point for the British taxpayers to sell off their 39% share in the bank. But it’s not so much reaching 61.0 pence as it is exceeding it and continuing to rise beyond it to a point where the government can actually deposit more money into its coffers than it spent. That’s not something that most governments are accustomed to doing, and that’s exactly why the average taxpayer is so opposed to government bailouts.”
On 30 April Lloyds shares were going at 55.20. By 01 August, following a stellar report for the entire first half, the share price has exceeded the magic 61.0 pence mark, eventually reaching 74.85, the highest it had been since September 2011. But, perhaps the key to the sale yesterday was that the share price has never looked back over the last 45 days.
The government, in the form of UK Financial Investment Ltd, still holds a 33% stake in Lloyds after yesterday’s placement. Even though the sale of the shares, valued at a total of £3.2 billion, is the the largest capital equity exchange in all of Europe this year, we understand that the demand for the shares was 2.8 times greater than what was allotted for the sale. That indicates a significant potential for the next placement, which, by agreement, cannot come before 90 days, which puts us right at the cusp of Christmas.
George Osborne observed that “This is another step in the long journey in putting right what went so badly wrong in the British economy.”
Regular readers know that I have been pretty hard on the banks, not that they don’t deserve some berating for the rare combination of incompetence and shading deals for which they have become infamous. So, I hope that what I am about to say is not premature. Based on the way the sale went, Lloyds’ overall performance (especially compared to the ineptitude at RBS), and the £61 million profit that the government made on the sales, I think that I am in a good position to say two things:
Congratulations to António Horta-Osório for leading Lloyds out of the slough of despond and toward what appears to be a bright and, perhaps, glorious future.
KUDOS TO GEORGE OSBORNE! Sir, you have accomplished something that most governments never understand let alone do. YOU MADE A PROFIT! UK readers . . . do you understand the significance of what just happened? THE GOVERNMENT MADE A PROFIT! What a concept.
Minister Osborne has set an example for others to follow, but I wouldn’t bet the family cow on any others actually following suit.
(Note to Mr. Osborne: Would you consider immigrating to America? We need you.)
