Last updated: March 12, 2013 7:39 am

Lloyds to reduce stake in St James’s Place

Lloyds Banking Group is to cash in on the record share price of St James’s Place by selling at least a third of its majority holding in the FTSE 250 wealth manager, raising more than £500m.

The state-backed bank pressed the button on a long-awaited plan to reduce its 57 per cent stake in St James’s Place on Monday. Minutes after St James’s Place closed at near all-time highs, investment bankers at BofA Merrill Lynch began taking orders from institutional investors.

They will place more than a fifth of the total shares in St James’s Place at 510p a share, a modest discount to Monday’s closing price of 536½p. The sale will raise gross proceeds of £520m, the company said in a statement on Tuesday.

The placing comes less than a fortnight after annual results from St James’s Place, which has attracted fresh inflows of money from its well-to-do clients.

Some analysts believed the improving performance strengthened the argument for Lloyds holding on to its stake in the business, which lifted its dividend by a third.

However, rather than selling completely, Lloyds is set to retain a stake of about 37 per cent. The bank has agreed to a lock-up arrangement, under which it will be prevented from selling more shares for a year.

The disposal reflects Lloyds’ strategy under chief executive António Horta-Osório to focus on its core UK retail and commercial bank and reduce the size of its balance sheet.

Lloyds said that it expected to book a gain of approximately £400m by reducing the size of its stake in St James’s Place, which the lender inherited when it rescued Halifax Bank of Scotland during the height of the crisis.

In addition to the cash raised through the placing, Lloyds will also book gains on intangible assets – in effect, the value of the St James’s Place brand.

The sale should improve Lloyds’ core tier one capital by about £600m, improving the ratio to the bank’s risk-weighted assets by 0.2 percentage points to 12.2 per cent.

Although relatively modest, this could help Lloyds bring forward the date at which it can resume paying dividends for the first time since the financial crisis. The cash raised could also ease any lingering regulatory concerns about Lloyd’s capital position.

The bank said on Monday that the decision would “maximise value for shareholders following a period of strong performance in SJP’s share price.”

St James’s Place was set up by a coterie of City grandees – Sir Mark Weinberg, Lord Jacob Rothschild and Mike Wilson – in the early 1990s. Halifax, then led by James Crosby, took a 60 per cent stake in the business 13 years ago.

David Bellamy, chief executive of St James’s Place, said: “Increased liquidity in our shares and a broader shareholder base is beneficial to our business and our shareholders.”

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