UK Treasury considers Lloyds stake sale

The Treasury is considering selling a first 10 per cent stake in Lloyds Banking Group before the end of the year, as George Osborne prepares to set out his exit strategy from the banking sector.

The chancellor is expected to signal a desire to begin reprivatising both Lloyds and Royal Bank of Scotland before the 2015 general election when he delivers his closely watched Mansion House speech on June 19.

He is not expected to outline any more explicit details about the timing or structure of the exercises and Treasury aides describe as “speculation” the idea that there is a fully-formed plan for selling either bank.

But people close to the process said that reprivatisation of the government’s 39 per cent Lloyds stake could be initiated by the end of 2013.

Lloyds’ share price, which has been trading above the 61p level at which the stake is valued in the government’s books for much of the past month, should make it politically as well as financially palatable to go for an early sale.

The process is expected to be executed principally through a placing with institutions, although a significant offering to retail investors, possibly at a discounted price, is also feasible.

Mr Osborne’s aides say he is in “no particular rush” to begin selling down the taxpayer’s 82 per cent stake in RBS – whose shares closed at 327p on Friday, below the 503p paid in 2008/9.

The chancellor will on Monday face new calls to accelerate the reprivatisation of Lloyds and RBS through a radical pre-election share distribution to the public, which could give 20m-30m individuals shares in the two banks.

The idea of the Treasury transferring shares worth between £1100 and £1650 in the banks to the public – who would only gain if the share price rose – is proposed by Policy Exchange, an influential think-tank with close links to the Osborne team.

Senior MPs and peers on the parliamentary banking standards commission are also looking at the plan on Monday as one of the “radical options” Mr Osborne should consider for ending the state’s role in RBS and Lloyds.

Mr Osborne’s aides say the Policy Exchange proposal – in which shares are distributed free of charge without any upfront payment – is “interesting but premature”.

Meanwhile, the banking commission, chaired by Tory MP Andrew Tyrie, begins on Monday a two-day private session to try to finalise a report on banking culture and standards that will shape the future of Britain’s banking industry.

The report is expected to impose new curbs on bankers’ pay to disincentivise dangerous risk-taking, an overhaul of the sanctions regime and a tougher “approved persons” system allowing errant bankers to be quickly banned from the City.

But the commission’s deliberations are expected to include heated exchanges over what it should say about RBS and Lloyds. Mr Osborne has promised to listen carefully to the advice he receives.

Mr Tyrie wants Mr Osborne to look at a series of options for ending the state’s involvement in the banks and is personally keen on splitting RBS into a good bank – which would be privatised – and a state-backed bad bank containing its toxic assets.

The chancellor has previously said such a move would force him to fully nationalise RBS – which is 82 per cent owned by the taxpayer – and indicated he has no desire to spend up to £8bn-£10bn in doing so.

Sir Mervyn King, Bank of England governor, supports the good/bad bank split as does Lord Lawson, former Tory chancellor, who sits on the commission. However other members, including Labour’s Pat McFadden, have argued it would be reckless to back a good/bad bank split without knowing its potential cost to the taxpayer.

Mr Osborne wants the state to exit the two banks at the earliest opportunity, believing that a return to the private sector would help them resume their full role in promoting lending to the economy.