By Patrick Corby
The share price in the state-backed Lloyds Banking Group reached the breakeven price on Friday, solidifying the view that the bank may again be privatised to partially return the public funds spent in bailing the bank out.
The banking group has had a 39% public stake since it was bought up by the UK government in the shadow of the financial crisis in 2008. A sum of £20.5bn in public money was spent in an attempt to sure up the company and stop it from becoming insolvent on its deposit liabilities.
Lloyds Bank was the top performer of the Financial Times Stock Exchange (FTSE) 100 last year. On Friday its share price rose 2.5%, passing the 61.2p per share targeted breakeven rate set by George Osborne, the UK chancellor.
City analysts had previously believed that the breakeven rate on the stake would be set at 72.3p, the average price paid for the shares by the government in 2008. Instead this in-the-money price has been targeted downwards to 61.2p. This price is based on the price the shares were trading at on the day the UK government bought the stake in the company rather than the 72.3p actually paid.
Banks analyst at Investec, Ian Gordon said: “Having missed the chance to sell some of its stake in September 2010 when the shares peaked at 77p – and subsequently collapsed to 21p by November 2011, it would be prudent to commence a disposal without delay.”
Mike van Dulken, head of research at Accendo Markets, said: “It’s a big trade-off between returning the shares to the markets as quickly as possible (well before the 2015 election anyway), and taking the opportunity to make up for some of the costs taxpayers incurred via forced bailouts.”
Presently the UK is also sitting on a £9.2 billion loss from its Royal Bank of Scotland (RBS) stake. Public money was used again in 2008 to inject a sum of £45bn at 502p a share but the equivalent target price for RBS is 407p, which would again present a loss to the public. RBS shares are currently trading around the 336p mark.
The chancellor has yet to announce any plans or strategies to sell off the 39% stake in Lloyd’s Banking Group or the 81% stake in the Royal Bank of Scotland.
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