Lloyds starts bailout payback with £4.3 billion for taxpayer

Nick Goodway
8 Jun 2009

Lloyds Banking Group today became the first bailed-out bank in the world to pay back significant money to any government.

It handed the Government £3.8 billion first thing this morning, with another £530 million added to Chancellor Alistair Darling's coffers this afternoon as the rump of its £4 billion share placing was sold in the market.

City Minister Lord Myners said: “I think this is very real progress. To imagine, three months ago, that we could have raised primary equity for a major UK bank experiencing the sort of bad debts that Lloyds was announcing is extremely difficult.”

But even after today's payment, which nets out at £2.6 million to the Treasury because it took up its own rights at a cost of £1.7 billion in the share placing, the taxpayer still owns 43% of Lloyds, keeping the pressure on its chief executive Eric Daniels.

Holders of one in eight of Lloyds' shares failed to take up their rights despite shareholders being offered the new shares at 34.83p — a huge discount to Lloyds' share price on Friday of 66.2p. That left 1.3 billion shares unsold, which brokers Citigroup, JPMorgan Cazenove and UBS had little problem shifting this morning.

Lloyds shares dipped 5.2p to 61p. But sentiment was helped as analysts at Deutsche Bank raised their price target to 100p a share. Traders said that a large part of Lloyds' army of more than two million private shareholders failed to take up their rights. Based on the average small shareholding of 550 shares, they had to send in a cheque for £130 to buy 340 new shares. Instead they will get a cheque for just under £100 in a couple of weeks' time — the difference between the offer price and the price achieved in the market this morning.

But it was not just private punters who did not take up their rights. Many overseas investors — notably in the US and Canada — could not take part in the offer, while several local authorities who are cash-strapped after losing money in Icelandic banks, were not in a position to take part.

Today's placings mean that Lloyds has bought out the original £4 billion of preference shares issued to the Government. It has also paid the Treasury a £100 million fee and £250 million interest on the preference shares.

A Lloyds spokesman said: “We would like to thank our investors for their support for our successful placing and open offer.

“We believe we are well-positioned to deliver significant benefits for our shareholders in the medium term.”

Barclays shares were also in retreat today — down 4p at 281p — as it confirmed that it is in talks to sell its Barclays Global International fund management arm for more than £8 billion. US fund manager BlackRock is front runner to complete a deal possibly this week.