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Lloyds Banking Group today fired the starting gun on its record-breaking rights issue, pricing the new shares at the top end of the range it set itself three weeks ago.
It is selling 36.5 billion new shares at 37p. That is a massive 59.5% discount to last night's closing price of 91.5p but well above the minimum price of 15p which the bank had set.
The £13.5 billion issue of new shares is the biggest ever by a British company and will enable Lloyds to extricate itself from the Government's asset protection scheme (GAPS) which was designed to insure the bank against losses on its worst debts but proved very expensive.
The Treasury is backing the Lloyds rights issue at a cost of £5.8 billion, which is the equivalent of £232 for every one of the 25 million households in the UK.
That will take the taxpayer's total lay-out on Lloyds shares since its ill-fated decision to merge with HBOS to
£20.2 billion, although the Treasury will claim back a fee of £144 million for backing today's share issue and £2.5 billion for quitting GAPS.
The issue will also be a bonanza for City banks and firms who will earn some £350 million in fees. Around £210 million of this will be shared by Bank of America Merrill Lynch, Citigroup, UBS, Goldman Sachs, HSBC and JP Morgan Cazenove who are underwriting the issue. That ensures Lloyds will get its money even if the stock market takes a nosedive in the next fortnight.
Lloyds is selling the new shares on the basis of 1.34 new ones for every existing share. This means that the new shares will actually make up more (57.3%) of the new share capital than the old ones.
Based on last night's closing price, the Government will have spent £20 billion for its 43% stake in the bank which is currently worth only £16.6 billion.
Setting today's rights issue price at the top end of the range was seen by analysts as a sign that Lloyds, under its new chairman Sir Win Bischoff and chief executive Eric Daniels, believes that it has regained the backing of City investors.
Bischoff put his money where his mouth is last week, spending £225,000 to buy 250,000 old shares so that he can take part in the rights issue.
The bank was also boosted by the fact that it managed to raise £9 billion — £1.5 billion more than targeted — yesterday through its swap of conventional bonds into more risky but higher yielding so-called CoCos. These convert into shares if the bank's balance sheet weakens below a set level.
Lloyds has cut almost 15,000 jobs since its merger with HBOS and has agreed to sell off 600 branches and its online Intelligent Finance business to satisfy European state aid rules.
Reader views (1)
Wouldn't touch it with a barge-pole. It's not the discount that worries me - its that 43% shareholder. You can't trust 'em not to play games (break-up, community bank, deficit funder).
- Digger, London, 24/11/2009 20:23
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