Comment: Lloyds in shape for return to private hands

THE seamless way the government has been able to unwind the taxpayers’ stake in Lloyds Banking Group without upsetting the share price is one of the best testaments to the bank’s return to health. It shows institutional investors have appetite for the stock. This is ­likely to be followed by a similar positive response from private investors when the government pushes through a politically palatable retail offer towards the end of the sell-off.
Martin FlanaganMartin Flanagan
Martin Flanagan

Lloyds’ interim results will do ­nothing to disturb this pleasing low-key momentum, the latest in a string of positive numbers from the lender that have taken it back to respectability following its £20 billion taxpayer bailout in 2008.

A 38 per cent rise in pre-tax profits to £1.2bn; a second consecutive symbolically important, if financially negligible, dividend after a seven-year freeze on payments; and the flagging of special divis and share buybacks down the line will further burnish the image of the recovering bank.

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Shares in Lloyds have risen 13 per cent in the past 12 months, compared with a 2 per cent dip in the wider Footsie index, even if they gave up some of their gains yesterday when the latest provision for mis-selling loan insurance came in larger than expected.

The comments on special divis and buybacks chime with chief executive Antonio Horta-Osorio’s aim of returning Lloyds to its historic roots of being a high-yielding, safe play banking stock. Get behind us, HBOS.

The taxpayer stake taken to rescue the bank in the financial crisis of late 2008, early 2009 has come down from a high point of more than 40 per cent to just 15 per cent. Lloyds should be fully privatised within the next year.

Investors see good news on cost under control, bad debts, net income and return on capital. The macro background music is also good, with the UK economy continuing to do well and Lloyds the most exposed of the big five UK banks to it.

Against that backcloth, taking Lloyds fully private again, with no future backseat interference from the government, looks no risk at all.

In terms of the corporate turnaround the group is not past the winning post yet, but it is clearly in the home straight.

Sino-slump’s fall-out

CHINA’s slower economic growth and the debilitating domino effect on the country’s stock market has moved centre-stage.

For a while, the jitters voiced in the West about the Sino slowdown were relatively sotto voce from the wings. A “correction”, nothing more.

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But as all measures tried by the Chinese government have seemed to come up short, a clamour has built up from not particularly pessimistic observers who fear for the repercussions on the global economy.

Two reasons for this are that reduced demand from China is contributing to the weakness in commodity prices, which eventually has global implications, and emerging markets often take their cue from the Middle Kingdom, so continuing volatility among them is highly possible.

The Chinese stock market fell 14 per cent in July, its worst slide in six years. Emerging market stocks are on track for their third month running in negative territory.

Major western companies, from car manufacturers to drinks and industrial groups, are warning that revenues from China could be hit in the second half of 2015. And, where cost-cutting cannot offset that, earnings falls are likely to follow.