National Audit Office - HM Treasury and United Kingdom Financial Investments Limited - HC 883

Description

The Government's first sale of shares in Lloyds Banking Group in September 2013 was managed effectively and provided value for money. United Kingdom Financial Investments (UKFI) thoroughly reviewed available options for a sale. It chose a process that maintained flexibility and allowed the sale to take place quickly, once a decision to sell had been taken. Taking account of market conditions and the fact that this was the first of a series of sales, UKFI decided to minimise risk by selling the shares only to institutional investors. Ahead of the sale, UKFI commissioned an extensive analysis of the value of the shares and priced the sale at 75p a share, a 3 per cent discount to the closing market price of just over 77p ahead of the offer. Demand in the sale from institutional investors exceeded the number of shares on offer by some 2.8 times. However, over three-quarters of this demand came from institutions seen as shorter-term investors. If these investors sold their shares soon after the sale, there was risk of a weak aftermarket and negative perceptions affecting future sales. Following the sale, the market price of the shares has held steady. Taking account of the cost of borrowing the money to buy the shares, there was a shortfall for the taxpayer of at least £230 million. This shortfall should be seen as part of the cost of securing the benefits of financial stability during the financial crisis, rather than any reflection on the sale process. (Source: Google Books API)