TSB to be sold on the cheap

Lloyds Banking Group has set the price range of its proposed listing of TSB at 220-290p, a level which implies it will be sold at less than its book value

TSB to be sold on the cheap


The modest aims of Lloyds and its bankers reflect at least in part, a continued softening in demand for new listings after a strong run through 2013 and the start of this year. It should be noted however that Lloyds is being forced to sell TSB and clearly that weakens its pricing power relative to voluntary issuers.

The midpoint of the price range would imply a market cap of £1.275bn versus a book value of around £1.6bn.

Lloyds shares are trading down 1.2% today on the news. Asset managers with significant stakes in Lloyds include BlackRock, Legal & General Investment Management, Scottish Widows Investment Partnership and Aberdeen Asset Managers.

A full prospectus will be published today and final pricing is due to be announced around 20 June. TSB share will begins trading on the London Stock Exchange on that same day.

The deal was and is unlikely to be pulled completely as with retailer Fat Face last month due to Lloyds being mandated to divest TSB. However a price range significantly below book value is very hard to see as a successful transaction unless it lands at the top end.

Another unconventional aspect of the situation is that the market knows that following this 25% listing the remaining 75% will have to follow in relatively short order as the Lloyds’ instructions are to divest fully by the end of next year. If investors who would like to take a position in TSB believe the next tranche will be cheaper still, that will add further downward pressure to the final pricing.

The proposed IPO of investment firm River and Mercantile is likely to give a less nuanced picture of the market for financial sector listings as it is not mandated but voluntary.  Precise timing and pricing for that deal is yet to be confirmed.

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