Lloyds Banking Group Plc (LON:LLOY) is the most traded stock among private investors, so why not give them the chance to buy from the taxpayer?
It was revealed last week that the government, now steered by Theresa May and chancellor of the exchequer Philip Hammond, will agree the sale of the taxpayer’s stake in Lloyds behind closed doors with the shares going only to financial institutions.
It goes against the prior plans put forward by George Osborne who had promised that the public would have the chance to buy the equity that was previously paid for by tax payers amidst the financial crisis.
Chancellor shuns public in final Lloyds share sale
Government urged to rethink Lloyds sale
Abandoning his predessor’s pledge, Hammond claimed: “Ongoing market volatility means it is not the right time for a retail offer.”
Instead, Hammond said his ‘trading plan’, a scheme to flog Lloyds shares to the City over a twelve month period, would be the best opportunity to get a price that delivers “value for money for the taxpayer.”
Hammond said the government would start to sell its 9.1% stake ‘shortly’ and that a trading plan would ensure that all of the £20.3bn that taxpayers injected into Lloyds during the financial crisis in 2008 would be got back.
Government urged to rethink new plan for Lloyds share sale
Michelle McGrade, chief investing officer at online stockbroker TD Direct Investing, has urged the government to rethink the exclusion of private investors from the share sale.
Acknowledging that Hammond’s plan was a kick in the teeth for private investors, McGrade highlighted that Lloyds is a share that individuals are more than happy to buy and hold.
“We’re finding it [Lloyds] is the most traded stock usually … that has been for some considerable time,” she said in an interview with Proactive Investors.
Noting the double standards in the new plan, McGrade added: “One of the things about the [London] Stock Exchange right from the beginning was that every shareholder should be treated the same, and every investor should be treated the same. So, whether you’re an institutional or private investor you should all have the same opportunity to invest.
“So, it is a little disappointing that the government has gone down this route.”
Not the time to sell RBS stake
While the government’s stake in Lloyds in on the block, Hammond has said now is not the time to sell any more of the UK taxpayer's 73% stake in Royal Bank of Scotland.
“It’s clear that the disposal of RBS shares at a price that recovers taxpayer’s investment is not practical at the moment,” Hammond said.
RBS won't be sold until the disposal of 300 Williams & Glyn's branches is agreed and the bank knows the extent of any fine it faces from the US Department of Justice over the mis-selling of mortgage-backed securities.
Lloyds makes sense for the long term private investor
The idea that Lloyds could be deemed too risky for investors goes against McGrade’s view for the bank.
She reckons the bailed-out bank is a good choice for the long term, particularly because of the adjustments made in the banking industry following the crisis and high profile failings such as the payment protection insurance (PPI) and other mis-selling scandals.
According to McGrade, this shift - which she expects will see banks become more like utility stocks - and increasingly attractive income yields are why private investors ought to buy Lloyds for the long term.
“One of the things that is interesting about them [the banks] is that they are fixing themselves up and they’re starting to pay dividends [again].”
Projected at just over 5.8% Lloyds’ yield is good for a stock that has been languishing, she says, as she highlights that the outlook for the bank is ‘reasonable’.
“The way I look at investing in banks is at the moment they are still in a recovery situation; we’ve got low interest rates so their margins are squeezed. If you believe that interest rates are going to go up at some time in the future … then actually these are shares that you should buy and put away for a rainy day as long term investments.”
“If you keep those for five or ten years you will be probably thanking yourself very much, but if you buy these shares to trade – that may be a different story.”
McGrade added: “We may not have very high interest rates, but it is likely that we’ll have higher interest rates than we do today… that means their [the banks] margins will be higher.”