British government sells down more shares in Lloyds as AIB decision looms

The British government said yesterday it has further reduced its stake in Lloyds Banking Group, a day after the bank posted its highest profit since before the 2007 to 2009 global financial crisis.

UK Financial Investments, which manages the UK government’s stake in the lender, said in a statement it has reduced its stake in the bank to 3.89%.

Any privatisation of banks across Europe will be closely watched here, as the Government appears set to definitely announce the date for plans to sell a minority stake in State-owned Allied Irish Banks. 

A Government source earlier this week told the Irish Examiner it was still looking at the “the first window” for an initial public offering in AIB.

That means that the Government could offer investors a 25% stake in the bank in May or June.

Lloyds, which was rescued with a £20.5bn (€24.3bn) bailout by British taxpayers, is close to a complete recovery from its crisis-era past after more than doubling its profit last year and setting aside a lower amount to cover misconduct issues.

At the current sell down rate, Lloyds should be fully returned to private ownership by May.

Meanwhile, Barclays posted fourth-quarter profit that missed analysts’ estimates on a charge for accelerating the costs of deferred bonuses, while the bank signalled progress in efforts to divest its Africa unit and sell off unwanted assets.

Fourth-quarter pretax profit was £330m (€390.6m), compared with a loss of €2.1bn a year ago. Adjusted pretax profit of £284m fell short of the £646m average estimate of five analysts. 

The shares fell after analysts questioned a potential shortfall in the banks’ pension scheme that could hit capital. The shares fell 3%.

In his first year, chief executive Jes Staley rebuffed calls to spin off or radically shrink the investment bank, instead opting to speed up business sales and sell down the firm’s African banking stake. The company said yesterday it will close the unit that houses its unwanted assets six months earlier than expected, and that it reached a separation agreement with management of the Africa division.

“Management are continuing to deliver ahead of expectations on the restructuring plan,” JP Morgan Chase analysts said.

“The next leg of upside is dependent on earnings and dividend growth.”

The firm’s common equity Tier 1 ratio, a measure of capital strength, rose to 12.4% from 11.6% at the end of the third quarter. That surpassed analyst expectations, and Mr Staley said the firm will gain another 0.75 percentage points from the Africa stake sale.

Still, analysts at Exane BNP Paribas raised concerns that potentially escalating contributions to the bank’s pension fund could weigh on capital.

“The pension fund could cause a £2.7bn drag on equity Tier 1 over the next three years, with £1.25bn in 2017,” Exane analyst Jonathan Pierce said.

Reuters, Irish Examiner and Bloomberg staff.


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