Private investors could shun Lloyds shares offer

Lloyds have adopted a 'Tell Sid' approach to sell shares. Picture: AP

UK Financial Investments (UKFI), the body that managers the taxpayers’ stake in the state-backed banks, raised £3.2 billion for the Treasury last week by selling a 6 per cent slice in Lloyds to institutional investors.

But Roger Lawson, chairman of the UK Individual Shareholders Society, warned that the deep “public distrust” of the tarnished banking sector means further sales – which could come as early as January – might be cold‑shouldered by private investors.

He said: “The problem [for a retail sale of Lloyds shares in future] is the general public has lost trust in banks.

“Small private investors used to invest in banks because they were seen as trustworthy and paid a high dividend. That’s gone. They may ask themselves do they want to invest in banks at this time? Personally, I would not.”

Private investors are also likely to be put off if Lloyds only pays small dividends when it resumes its shareholder payouts, he argued.

Lawson, whose organisation has 3,000 members, added: “You also have the fact banks’ financial accounts are not the easiest to understand. That’s a problem as well.”

His scepticism contrasts with a belief by City institutions and banking analysts that a public offer for shares is increasingly likely.

UKFI sold the 6 per cent after an accelerated bookbuilding process involving a small band of institutions, cutting the taxpayer stake to 33 per cent from 39 per cent.

The placing was oversubscribed and was hailed by George Osborne as a success. In a letter to Andrew Tyrie, chairman of the Treasury committee, the Chancellor said: “I will consider all options for later sales of our shareholding in Lloyds, including a retail offering to the general public.”

Paul Mumford, a fund manager with Cavendish Asset Management, which holds five million Lloyds shares, said: “The UK government could have a more general institutionalised offering next time, which could well include a retail component, just as Royal Mail is doing with its privatisation.

“If the Royal Mail [retail] shares’ take-up goes like a train then it’s going to be difficult to stop Lloyds going the same route.”

Mumford said a retail offer may prove popular with private investors because – of all the high street banks – Lloyds was “a proxy for the UK economy”. He added: “If there is a broader share offering next time you are going to get a wider share ownership, which is no bad thing. And it wouldn’t faze the City.”

Ian Gordon, banking analyst at Investec Securities, said: “It is reasonably likely that we will get a retail component next time round with a Lloyds share selldown by UKFI.

“It’s almost certain the Chancellor will broaden the target market after the first tranche was so well received. He will properly access the depths of the financial market, including a broader range of institutional investors and private client stockbrokers. A ‘Tell Sid’ campaign might also attract one to two million share applications.”

“Tell Sid” was the name of the 1986 advertising blitz to encourage the public to buy shares in British Gas.