Shares in TSB rise by 15%

Shares in TSB rose by as much as 15% today as the lender returned to the stock market after nearly two decades.

Shares in TSB rise by 15%

Shares in TSB rose by as much as 15% today as the lender returned to the stock market after nearly two decades.

The surge added £200m to the group’s value as state-backed Lloyds Banking Group floated a larger-than-expected 35% chunk of the business, increased from 25% due to investor demand.

Around 60,000 ordinary retail investors took part in the offer which was more than ten times oversubscribed.

Fund manager Hargreaves Lansdown said Lloyds had scaled back applications on tranches of more than £2,000 of shares after they proved “extremely popular”.

They were initially priced at 260p, valuing TSB at £1.3bn, but later soared past the 300p mark before settling back at above 290p.

Chief executive Paul Pester said: “I am delighted with the level of investor demand for TSB’s shares – especially amongst retail investors, who make up approximately 30% of the IPO (initial public offering) allocation.

“It shows there is real appetite for a different kind of bank – a high street bank, not a Wall Street bank – which is focused on customer service.

“We are now focused on delivering on our strategy of bringing more competition to high street banking across Britain.”

The float raised £455m and sees TSB return to the market for the first time since 1995 when it merged with Lloyds.

TSB, which has 631 branches, has been re-launched after Lloyds was forced to offload the sites under European rules on state aid. It must dispose of its holdings in the business by the end of next year.

Increasing expectations of an interest rate rise in the wake of remarks by Bank of England governor Mark Carney are thought to have spurred the demand for the shares as it would mean better profit margins for TSB on mortgages.

The initial 260p valuation was just above the mid-point of the 220p-290p expected price range announced earlier this month, and valued the bank at 82% of its book value on the Lloyds balance sheet.

Lloyds had previously been preparing to sell the branches to the Co-operative Bank for £750 million before the discovery of a £1.5bn hole in the mutual’s balance sheet caused the deal to collapse in April 2013.

The revived TSB, which has 4.5 million customers, is now the seventh largest retail banking group in the UK.

Lloyds chief executive Antonio Horta-Osorio said: “The successful initial public offering of TSB is an important further step for Lloyds Banking Group as we act to meet our commitments to the European Commission.

“The significant investor demand for shares in TSB, which reflects investors’ confidence in the prospects for the business, has meant that we have been able to set the offer size at 35%.

“TSB has a national network of branches, a strong capital base, robust liquidity and significant economic protection against legacy issues.

“It is already operating on the UK high street and is proving to be a strong and effective challenger, further enhancing competition in the UK banking sector.”

Lloyds Banking Group, which also includes Halifax and Bank of Scotland, remains 25% owned by the Treasury after it was rescued by the taxpayer during the financial crisis.

The TSB offer comes amid the disappointing performance of other recent stock market flotations, with over-50s insurance and holidays group Saga among those to have seen shares decline, while fashion retailer FatFace shelved its float plans.

Retail investors in the bank were offered the sweetener of one free share for every 20 acquired, up to the value of £2,000, and held for a year after the float.

TSB is aiming to become a larger player in the current account market, growing from 4.2% to 6% over the next four to five years.

In its prospectus for potential investors, TSB said it did not expect to pay a dividend until the 2017 financial year. It reported profits of £172 million for 2013 and a figure of £60m for the first three months of 2014.

The bank this month announced that staff were to be handed free shares worth £100 as part of a John Lewis-style reward scheme.

TSB, famous for its 1980s’ slogan “The bank that likes to say yes”, traces its history back more than 200 years. It was first floated in 1986 before being swallowed up in the Lloyds merger nine years later.

Shore Capital said the implied pre-tax loss to Lloyds relative to the book value on the sale was £113 million.

The analysts have described the shares as “enticing” and “priced to go” with potential to take current account market share and expand mortgage distribution.

There was also potential for profitability to improve as the loan book builds and as interest rates rise, while Lloyds has offered an indemnity against past “legacy” issues.

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