A final decision was being made last night, but the parent company is understood to be leaning towards a larger IPO (initial public offering) from the earlier 25 per cent planned.
One source familiar with the situation said: “A 35 per cent stake sale is now possible, but not definite. It is because demand has been really strong from both institutional and retail investors. That is going to be the judgment Lloyds and its advisers have to take.”
Conditional trading starts in the TSB shares this morning.
It is believed there has been “solid demand” for the float at the midpoint range of 250p to 270p, compared with the wider range set last week of 220p to 290p.
This is said to have made Lloyds more optimistic that it can get a wider tranche of the shares in TSB away in the first go.
The bank has to divest the famous banking brand on the orders of the European Commission in return for the parent’s £20 billion taxpayer bailout in the 2008 financial crash.
Simon Willis, banking specialist with broker Danier Stewart, said: “It doesn’t surprise me if Lloyds do go with a bigger initial flotation.
“Lower pricing ranges were being cited in the media last week and at the weekend and I think this may have flushed out more interested investors.Having attracted that additional interest from both the institutional and retail sectors, Lloyds might have thought it might be worth taking a chance to divest more at this stage.”
Lloyds said in its prospectus it planned to sell 125 million shares in TSB, but gave itself the option of ramping this up to 175 million shares if there was strong demand. Fund managers said yesterday that demand has probably been sharpened by recent suggestions from the Bank of England that historically lower interest rates could rise faster than financial markets expected.
TSB is seen as benefiting from rising rates because two-thirds of its £17.7bn mortgage portfolio is capped standard variable rate loans.
These tend to be low profit margin, but traditionally many homeowners switch to more profitable fixed rate mortgages to insulate themselves against expected interest rate rises.
“I still don’t see TSB’s pricing being at the absolute top of the range because of the volatility surrounding the general flotations market in recent weeks,” one fund manager said.
“But I could see the attractions, financially and politically, of Lloyds selling off a bigger tranche at this time.”
TSB, at the mid-point range, is expected to be valued at £1.3bn – about £300m less than its “book value”, the basic valuation of its assets without any premium for control of the business.
The business will be one of the biggest “challenger banks” to the big five retail lenders, with 4.5 million customers and 6 per cent of the UK’s bank branches.