The UK government has announced that it is to sell off another chunk of Lloyds Banking Group (LSE: LLOY) (NYSE: LYG.US) shares, just days after the bailed-out bank squeaked through the Bank of England’s latest stress test.
The move should raise up to £3bn to add to the £7.4bn already recovered from previous sales, and is expected to take the taxpayers’ stake in the bank down from the current 25% to around 20%.
Into profit
Changing hands at around 75p, Lloyds shares are now worth more than the average 73.6p price paid by the previous government, and the new tranche will not be sold at anything less than that purchase price. Despite protestations by those outraged at the “waste of taxpayers’ money”, it seems likely that once the whole of Lloyds is back in private hands we’ll have at least broken even on the deal — and helped save the economy in the process!
The sale, to be managed by Morgan Stanley, will be gradual so as not to cause any unnecessary shock to share prices in the short term.
If the government is selling now, is is a good time for private investors to be buying?
Stress test was tough
You might be a little concerned that Lloyds (along with TSB) only barely made it through the stress test. But it was onerous, and simulated a deep recession coupled with a big interest rate rise and high unemployment, and a housing price crash the likes of which has never been seen. And future tests are apparently going to be tougher!
If Lloyds can pass a test like that at this stage in its recovery, I reckon it’s doing pretty well.
In its third quarter, Lloyds recorded a pre-tax profit of £1.6bn to take the nine months into strong positive territory with £1.7bn, with tangible net asset value steadily increasing, so it’s looking good on profitability as well.
2015 is looking good
We’re still waiting for news of the resumption of dividend payments, and it was always likely to have to wait until after the stress test results were known — but the exact timing is really not so important. Analysts are predicting a very nice (and very well covered) yield of 3.8% in 2015, and earnings forecasts would put Lloyds shares on a P/E of only a little over 9.
Brokers are pretty bullish too, with a big majority putting Lloyds on a Strong Buy rating — and I’d find it hard to disagree with them. Could Lloyds be the banking bargain of 2015? I think it could.