The government made a cautious start to bank reprivatisation this week after selling a 6 per cent stake in Lloyds (LLOY) - it now owns 32.7 per cent of the lender. This modest move involved an institutional placing at 75p a share - comfortably above the 61p a share at which the stake is valued by the government in the national accounts.
"UKFI has, quite sensibly in our view, chosen to take advantage of recent strength in Lloyds' share price," said analyst Ian Gordon of Investec Securities. "We regard the government's timing as impeccable and it appears credible to suggest that it could be out in full by the election." The government can't sell any more shares for at least 90 days, but it's widely expected that the next disposal will take place early next year and that it's likely to include a retail investor offering alongside a further institutional placing.
The placing attracted better than expected interest from US institutional investors and hedge funds, too - suggesting that Lloyds may have been perceived as way to gain exposure to the UK's economic recovery. However, there's little sign yet of that recovery making much difference to the UK's banks. "Lloyds' reported profitability currently remains anaemic," says Mr Gordon. "EPS was 0.0p in the second quarter of 2013, and we forecast only 0.5p in the second half of 2013." A brief trading update from Barclays (BARC) this week also made for uninspiring reading. It revealed that the lender's adjusted income for July and August was down by £500m on the year, with income at Barclays' investment banking arm described as "significantly below" that of the same period last year.
Nor has any tangible progress been made in dealing with the really big bank reprivatisation challenge - disposing of the government's 81 per cent stake in RBS. Indeed, business secretary Vince Cable said last month that an RBS sale wasn't likely "for at least five years".
