Comment: Revitalised Lloyds is irresistible for investors

Martin Flanagan

Martin Flanagan

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MORE people flagged up their interest in buying Lloyds Banking Group shares in one day last week than in the complete two‑week registration for the Royal Mail privatisation. A total of 62,500 had signed up to buy back part of the taxpayer stake in the bank by close of play on Monday. In addition, retail broker Hargreaves Lansdown has revealed that 120,000 people have asked it to update them with alerts on the Lloyds sale as the process develops.

That is a lot of interest, and will please George Osborne immensely. First of all, on the comparison with Royal Mail, the relative disparity is not that surprising.

The fundamental business model of Royal Mail was more of an unknown quantity for would‑be investors, what with growing competition from privatised rivals cherry‑picking profitable business and with no universal service obligation, and the game‑changer for the post that is the phenomenon of email. Regarding the latter, people changing the way they communicate from pen and paper to electronic means has been a transformer of society akin to the coming of newspapers to Britain in the 18th century.

Investors had therefore to make a decision in the Royal Mail privatisation as to whether the organisation could make enough profit through its parcels business (itself under pressure from the likes of Amazon) to make up for earnings lost to its letters division.

There may have also been some lurking fears on the part of investors about the well‑established and relatively confrontational nature of the unions at Royal Mail.

These factors reining back some shareholder enthusiasm do not apply in the Lloyds retail offer. The bank had a few dodgy years in the wake of the financial crash, but unlike Royal Bank of Scotland and Northern Rock was not laid low by endogenous factors.

It was only the government‑orchestrated takeover by Lloyds of the stricken HBOS that caused the maelstrom. And Lloyds has returned to robust profitability, the reason why the government feels it can reduce the taxpayer stake acquired in the bank’s bailout in the crash to nothing next year compared to about 40 per cent at the high water mark and just under 11 per cent now.

Meanwhile, industrial relations are also not a factor for investors to mull. The banking unions are largely busted flushes, punch-drunk and enervated by the continual jobs‑haemorrhaging since the crash.

Osborne and the Treasury have also structured the Lloyds offer attractively, through a mixture of the 5 per cent discount to the current market price and bonus shares, also sensibly prioritising investors who apply for fewer than £1,000 worth of shares so that the more affluent do not corner the market.

The drip‑drip feed of stock into the market to institutional investors since last December has also been shrewdly weighed, avoiding any volatility and creating an ideal backdrop for the retail offering. «

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