The government is expected to sell off its remaining shares in Lloyds Banking Group in the coming week, marking a watershed moment for the sector after the financial crisis.
Eight years after pumping in £20bn to prevent the bank from collapsing, taxpayers will no longer own any shares in an institution that was created in the depths of the financial crisis when Lloyds TSB rescued HBOS.
The share sale, in the midst of the general election campaign, will highlight the contrast between the progress of Lloyds and that of Royal Bank of Scotland, which is still 73% owned by the government and has yet to make an annual profit since its bailout.
At its peak, the taxpayer holding in Lloyds stood at 43% and first started to be scaled back in September 2013. Last week, the bank’s chairman, Lord Blackwell, told shareholders at its annual general meeting that the stake had fallen to 0.25%, with those final shares expected to be disposed of in the coming days.
They will not be sold with the fanfare envisioned by George Osborne when he was chancellor. He had ambitions for a discounted share sale to the public, which had to be abandoned a year later by his successor, Philip Hammond, because of the fall in the bank’s shares after the Brexit vote.
Instead the shares are being sold off on the stock market through the investment bank Morgan Stanley at prices below the 73.6p average that taxpayers paid during the three-stage bailout that began in January 2009.
Hammond has said that despite some of the shares being sold at a loss, the government has still recouped all the £20.3bn used to buy shares. However, that does not take into account the £3.6bn cost incurred by the government although the bank’s chief executive, António Horta-Osório, told last week’s AGM that the government would make at least £500m from the bailout.
The return to the private sector has led to 57,000 job cuts – in part because of cost-cutting implemented in the merger but also subsequent efficiency drives to boost profitability.
The bailout also required a restructuring of the bank. While a competition inquiry was averted after the HBOS deal was clinched at the height of the crisis, the EU required 600 branches to be sold off. Those TSB branches are now owned by Sabadell of Spain. Lloyds still has a 25% share of current accounts, 22% of retail deposits and 21% of the mortgage market, largely through Halifax.
The recovery of Lloyds has also been held back by a bill of more than £17bn to compensate customers missold payment protection insurance (PPI) – about half the industry’s total.
Horta-Osório, who has been paid more than £30m since becoming chief executive in 2011, will now face questions about his own plans. He has focused the bank on the UK, which now accounts for 97% of its business, after retreating from 30 countries to six.
The Portuguese banker is also expanding into credit cards, buying MBNA for £1.9bn to increase Lloyds’ market share from 15% to 26%, at a time when concerns are being raised about the speed of consumer credit growth.
Horta-Osório is also facing anger from businesses hit by the loans scam at the HBOS branch in Reading. Six people were jailed in February after a jury heard they splashed out on superyachts and sex parties, while destroying businesses they had been lending to. Lloyds has set aside £100m to compensate 64 victims including the TV presenter Noel Edmonds but is facing questions about whether it will be enough.
September 2008 A £12bn takeover of HBOS by Lloyds TSB comes just days after the collapse of Lehman Brothers sent shockwaves through financial markets. The Financial Services Authority, then the City regulator, says the deal will “enhance finance stability”.
October 2008 As financial instability mounts the government announces a bailout of the banking system. Lloyds TSB renegotiates the takeover of HBOS to 0.605 Lloyds TSB shares for every one HBOS share, from 0.833 a month earlier.
January 2009 Lloyds Banking Group is created from the purchase of HBOS by Lloyds TSB. The government begins first of a three-tranche bailout of the group, pumping in £13bn.
May 2009 Sir Victor Blank is forced to step down as chairman of Lloyds.
June 2009 The government puts in another £1.5bn.
December 2009 The government backs cash call, buying £5.8bn of shares. Total rescue deal amounts to £20.3bn. Taxpayer stake stands at 43%.
March 2011 Eric Daniels leaves and António Horta-Osório takes over as chief executive.
May 2011 Lloyds takes first provision for payment protection insurance of £3.2bn. The bank’s bill eventually tops £17bn.
November 2011 Horta-Osório takes leave, citing fatigue. He returns to work in January.
September 2013 The taxpayer stake gradually reduces from 43% to 39% for technical results. It is cut to 33% when a formal sell-off of Lloyds shares begins: £2.3bn of shares sold to big City investors at 75p a share.
March 2014 £4.2bn of shares sold at 75.5p, taking the taxpayer holding to 24%.
February 2015 Dividends to resume for first time since the bailout.
December 2014 George Osborne announces a plan to dribble out shares into the market.
October 2015 Osborne unveils plans for a cut-price sale to the public.
October 2016 Philip Hammond, the new chancellor, abandons his predecessor’s pledge to sell cut-price shares to the public.
May 2017 The taxpayer is expected to exit Lloyds Banking Group.