Lloyds Banking Group (LSE: LLOY) (NYSE: LYG.US)Â is laying the groundwork to return more of the government’s 33% stake to private investors. This can’t take place before the group’s annual report is published in March, so April is a reasonable guess as to when this might happen. The government paid 74p per share and hopes to return Lloyds to full private ownership before the next general election in 2015.
At first we could see another 10% picking offered, and at the current share price, that would be worth £5.7 billion. A two part sale is likely with the first aimed at professional investors and a later offering, with a massive marketing campaign, aimed at individuals. By splitting up the sale the government will also be able to adjust the price accordingly, so there won’t be an embarrassing repeat of what happened with Royal Mail, where the treasury lost out on £2 billion after the shares were undervalued.
What you are likely to be getting with Lloyds is a banking giant, paying out a newly reinstated dividend, for a cheap price. But where will the share price go?
How recovered is Lloyds?
Loyyds is predominantly now a retail bank with a near exclusive domestic focus. The main problem is the hangover from bad behavior both before and since the banking crisis, amounting to some serious costs. Yesterday Lloyds added £1.8 billion to that lot after it made yet more provisions to cover the mis-selling of payment protection insurance.
The PPI compensation bill now stands at £10 billion and is likely to grow. Lloyds has so far agreed to repay 2.6 million customers, with yesterday’s £1.8 billion addressing a further 550,000 complaints. This is without mentioning fines for Libor fixing or the mis-selling of interest rate hedging products to businesses.
Lloyds delivered some good news yesterday, after it revealed it made an underlying profit of £6.2 billion in 2013. This was more than double market expectations and, subject to a return to sustainable profitability, the bank will apply to the Prudential Regulation Authority to resume dividend payments.
How much headway is there?
While the news on dividends might make Lloyds seem an attractive prospect given its bargain price, shares have risen by around 55% in the last year, so the bank may be fully priced already. Recent news of further fines, with more heading down the slipway, give the impression that the road to recovery is a long one.
The dividend is expected to resume at a modest amount, which based on Lloyds’ guidance, should yield around 2.5%. Barclays, on the other hand, offers a prospective dividend yield of 3.6% — which means you’ve got options to consider.
