Shares in Lloyds Banking Group (LON:LLOY) fell after the government put off the planned sale of its remaining stake due to market turmoil.
The stock was 0.98p, or 1.5%, off at 63.94p after Chancellor George Osborne decided to delay the sell-off of the state's holding of just under 10% in Lloyds following stock market carnage in the last few months.
Osborne said: "With these turbulent financial markets now is not the right time to have that sale. We will sell Lloyds to the British people but we will do so when the time is right."
We'll build a share owning democracy. So British people can buy Lloyds shares but we'll only sell when turbulent markets have calmed down
— George Osborne (@George_Osborne) January 28, 2016
Analysts said Osborne would have had an eye on other state privatisations in making his decision because he would not want an unsuccessful Lloyds sale to damage already fragile market sentiment.
AJ Bell investment director Russ Mould said: “Osborne will clearly be looking for a better deal for the Government, to maximise returns as best he can, and he won’t want any issue that was aiming for substantial involvement from private investors to be a flop.
"Investors will also note that it is not just Lloyds’ share price that is struggling – all banks are floundering. Bank sector indices in the UK, Europe and USA are all trading at their 12-month lows."
Mould said the stock price falls potentially reflected the slow pace of interest rate rises, which was depressing banks' profit margins.
He also blamed a potential impact from choppy financial markets on the earnings of institutions with investment bank exposure.
Mould added that the falls may be due to fears about the extent of any bank’s exposure to the oil industry, via the loans it has made to producers and explorers.
He said: "This is already an issue in the US, where big banks like Bank of America, Wells Fargo, Citigroup and JP Morgan have all talked of higher provisions against loan losses and greater caution on their lending toward energy firms, although there are no indications yet of any such worries on this side of the Atlantic."
The state originally held a stake of about 43% in Lloyds following its partial taxpayer bailout in the 2008 global financial crash. But the stake was less than the holding of about 81% that the state was forced to take in struggling rival Royal Bank of Scotland (LON:RBS).
Ministers have gradually reduced the Lloyds holding since then and pledged to sell shares worth £2bn to the public this spring as part of the Tory manifesto for last year's general election.
But doubts about the move have arisen as markets have tumbled amid fears about falling oil prices and the health of China's economy.
Shares in Lloyds fell 1.3p, or 2%, to 63.62p on Thursday, below the level at which the government would make a profit.
The Labour Party and Osborne's critics are likely to brand the move as another U-turn following the Chancellor's decision in his Autumn Statement to abandon controversial changes to tax credits.
Hundreds of thousands of investors flagged their interest in the shares and senior analyst at Hargreaves Lansdown, Laith Khalaf, said the news would be a big disappointment for them.
But he added: "Taking a big loss on selling shares when markets are low was always going to be a bridge too far for the Chancellor.
"The fall in the Lloyds share price has left them around 10p below what the government thinks it needs to break even, and together with the planned 5% discount and bonus share scheme would have meant the Chancellor putting his hand in his pocket, so now he looks to be pinning his hopes on a recovery in markets later in the year.
"We expect this share sale to proceed at some stage but the timescales are unknown."