Back in black

At the height of the banking crisis of 2008, Lloyds Banking Group – alongside RBS – was among the most high profile examples of a previously successful financial institution having to be bailed out by its government.

The UK government decided it necessary to take a 39 percent stake in Lloyds as part of a staggering £37bn bailout package designed to preserve deposit holders’ money. Now, a mere five years later, the bank has announced a return to profit. The bank has reported profits for the six months to June of £2.1bn, a considerable increase on the loss reported at the same time last year of £456m.

Announcing the news, Lloyds’ chief executive Antonio Horta-Osorio said: “We are now well on track to create a bank with a lending cost position, lower risk, a lower cost of equity and products and services focused on our customers’ needs, to deliver strong, stable and sustainable returns to our shareholders.”

He added that with the share price up, the government could start looking to offload its stake: “The share price is now in a position where the government can return taxpayers’ money at a profit.”

In June, UK Chancellor George Osborne spoke at a dinner for the banking sector about how Lloyds was reaching a point where it could be returned to the private sector. He said in his speech: “Lloyds is in a good position. Investor interest is growing. And shares are already trading at around the price where selling would reduce the national debt.”

However, he cautioned: “We will only proceed if we get value for the taxpayer. And we have no pre-fixed timescale or method of disposal. For the first block of government shares, an institutional placement is likely to be the most effective way of managing risk and getting value.”

Responding to the news, Investec analyst Ian Gordon told World Finance he expected the government to sell an initial tranche of shares “soon”. This would likely be in September, although might be sooner considering the levels the shares are trading at currently.

Lloyds has not paid a dividend to its shareholders since 2008, and Horta-Osorio refused to speculate about when they might resume doing so. However, Gordon believes the bank will offer an initial token one pence forecast in February of next year.

The World Finance Banking Awards, 2013, will be announced in the September-October issue.

Back in black