Lloyds Bank has confirmed it is to float a 25 per cent stake in its TSB subsidiary next month with shares being made available to the public to help deter “quick buck” seekers.
The retail offer contains an incentive for small shareholders to receive one free share for every 20 acquired up to the value of £2,000 – as long as stock is held for a year after the public listing. Many applicants are likely to be TSB customers.
Paul Pester, TSB’s chief executive, said today the offer would also be available to institutional investors, but retail investors would probably get 15 to 20 per cent of the shares.
However, he warned that there would not be a “significant dividend in the early term”, signalling no payout until the 2017 financial year.
In addition, the remaining 75 per cent stake that Lloyds holds in the business has to be sold off by end-2015 to meet the European Commission ruling that the parent bank divest more than 600 branches in return for its state bailout in the financial crisis. The float follows an earlier failed attempt to sell the assets to the Co-op Bank.
Analysts believe the sale of the remaining Lloyds stake could also act as an overhang on TSB shares in the short term. Pester said: “It was important to me [to have a retail component] because it brings customers in at a higher level. “But we want to stress this is a long-term investment, a growth story for which we are seeing strong interest. We don’t want people to get in and flip the shares in 15 minutes to make some quick return.”
He said the investment case was that TSB was a “straightforward” UK high street bank lending to households and medium-sized businesses, with no exposure to costly “legacy” issues such as payment protection insurance (PPI) mis-selling.
Lloyds’s own provisions for PPI mis-selling currently stand at £9.8 billion. TSB also has no investment banking arm, the latter branded as “casino banking” by critics.
Antonio Horta-Osorio, chief executive of Lloyds, said: “TSB has a national network of branches, a strong balance sheet and significant economic protection against legacy issues. It is already operating in the UK high street and is proving to be a strong and effective challenger, further enhancing competition in the UK banking sector.”
Pester added that the new bank blended the attitude and growth potential of a challenger bank “but with the scale and capabilities of an established player”.
The group is Britain’s seventh biggest high street banking business, with about 6 per cent of the country’s retail bank branches and 4.5 million customers. TSB has said it wants to become a bigger player in the current account market, expanding from 4.2 per cent to 6 per cent market share within five years.
Sources say the float is expected to be priced at less than the bank’s book value of £1.5bn, meaning Lloyds would make a loss on the sale of the 200-year old brand. Lloyds took it over in 1995 after the previously trustee-structured TSB was floated on the stock market in 1986.