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Government delays sale of final Lloyds Bank shares

Paloma Kubiak
Written By:
Paloma Kubiak

The government has delayed the sale of its final 10% stake in Lloyds Banking Group owing to “market volatility”.

Chancellor George Osborne today announced the sale of the last tranche of government-owned shares in the banking giant – just under 10% – to the public would be postponed amid concerns of a fall in Lloyds’ share price.

While the timetable for the share sale has always been vague with Osborne leaning towards the spring of 2016, Laith Khalaf, senior analyst at Hargreaves Lansdown said the Chancellor now looks to be “pinning his hopes on a recovery in markets later in the year”.

He added the fall in the Lloyds share price has left them around 10p below what the government thinks it would need to break even. And with the planned 5% discount and bonus share scheme, it would mean the government taking a big loss which is a “step too far” for the Chancellor.

However, for investors who buy today (so far 270,000 have registered their interest in the sale with Hargreaves Lansdown), they will get a significant yield pick-up compared with buying at the government’s in-price, Khalaf said.

“Market forecasts suggest Lloyds could pay a dividend of 4.7p for 2016 and 5.5p the year after, offering a yield of 5.75%, rising to 7.3% in 2017 at today’s market price of 64p.”

Russ Mould, investment director at AJ Bell, said the market volatility has left Lloyds’ share price at 63.7p, which is well below the government’s average purchase price of 73.6p.

He added: “Osborne will clearly be looking for a better deal for the government, to maximise returns as best he can, and he won’t want any issue that was aiming for substantial involvement from private investors to be a flop.  That would damage already fragile sentiment and make it harder for any future privatisations to do well.”