“Lloyds is likely to crystallise a loss with the sale as TSB is unlikely to deliver double digit returns nor pay a dividend for a number of years,” Ed Salvesen, deputy head of equity research at Brewin Dolphin wealth management, said.
The bank had warned in its statement that it first would be able to pay dividends from 2017, which could affect business valuation.
EU competition law
Lloyds Banking Group must sell 25% of the business as mandated by the European Commission, and is required to sell the remaining 75% stake before 31 December 2015. Lloyds was bailed by the government in 2008.
“Lloyds is selling 25% of TSB now with further stake sales to come in fairly short order. They themselves face the prospect of the government selling its remaining 25% stake before the election in 12 months’ time. With the outlook for the UK economy the best it has been for seven years, at least TSB has the advantage of going first,” according to Matthew Beesley, head of global equity at Henderson Global Investors.
The previously collapsed sales price agreed with the Co-operative Bank, £750m, is significantly less than £1.5bn which analysts expect the segment to be valued at.
“The sale valuation is likely to be below the tangible book value. Lloyds has not published the amount of equity in the business but it had £1.5bn in it when it was trying to sell it to the Co-op Group,” Salvesen noted.
“This is a good step forward for Lloyds; however, it is difficult to gain more of an insight until we know more about the valuation. If it is sold at lower than tangible book value, this will be disappointing in terms of the capital position of Lloyds but we do not expect it to change the investment case,” he added.
Free shares
In the stock exchange announcement, the financial confirmed that retail investors are to receive one free share for every 20 Shares acquired up to £2,000, as long as they hold the stock a continuous period of one year after IPO. Shares will be available for both institutional investors and intermediaries.
“The promise of bonus shares for loyal shareholders tells you of their need to build a following, especially with so much banking issuance to come in the next few years,” Beesley commented.
TSB has a customer base of 4.5m retail customers with 631 branches making it the seventh largest retail banking group in the UK by branch network, or 6% of retail bank branches in the UK.
António Horta-Osório, group chief executive of Lloyds Banking Group, said: "The decision to proceed with an initial public offering of TSB is an important further step for the Group as we act to meet our commitments to the European Commission. TSB has a national network of branches, a strong balance sheet and significant economic protection against legacy issues.”
