Lloyds Banking Group plc (LON:LLOY) has returned to private ownership following a successful turnaround under Antonio Horta-Osorio’s leadership but the bank has had a rocky road to recovery.
The government had pumped in a total of £20.3bn to rescue the bank during the height of the financial crisis, buying up a 43% stake. The Treasury has now sold its remaining shares with proceeds amounting to £894mln more than it paid for its stake.
Star fund manager Neil Woodford is among the investors, having last week revealed that his Woodford Investment Management business bought a stake in Lloyds. The investment marked a return of banks to Woodford's portfolio for the first time in 14 years, aside from a brief flirtation with HSBC in 2014. Woodford said Lloyds is a "well-managed bank with a conservative approach to its balance sheet" and a growing level of dividends.
Chief executive Antonio Horta-Osorio said in a statement today: “Six years ago we inherited a business that was in a very fragile financial condition. Thanks to the hard work of everyone at Lloyds, we’ve turned the group around."
Horta-Osorio joined Lloyds in 2011, helping to mend the bank by cutting costs, offloading toxic loans and tackling its payment protection insurance mis-selling scandal.
By taking on the top job at Lloyds, Horta-Osorio had a big task in turning around the bank’s fortunes. That would explain why he took three months of leave due to “fatigue” after barely six months in the role.
Lloyds’ bailout…
In September 2008, Lloyds TSB paid £12bn to buy HBOS as its share price plunged following the collapse of the Lehman Brothers, which is thought to have played a major role in the unfolding of the financial crash.
A month later, the government announced a bailout of banks as the financial crisis hit.
At the same time, Lloyds TSB renegotiated its takeover of HBOS to 0.605 Lloyds TSB shares for every one HBOS share, from 0.833 a month earlier.
Lloyds Banking Group was subsequently formed by the combination of HBOS and Lloyds TSB in January 2009. At this point the government started the first of a three-tranche bailout by injecting £13bn into the bank.
In March the same year, Sir Victor Blank was ousted as chairman after the bank revealed £11bn of losses at HBOS.
Two months later the government piled in a further £1.5bn, followed by another £5.8bn injection in December, taking its stake to 43%.
In April 2010, Lloyds revealed in its quarterly results that it had returned to profit for the first time since the banking crisis.
Horta-Osorio takes the lead…
In September 2010, chief executive Eric Daniels surprised the city by announcing he would step down and the bank poached Santander’s UK head Horta-Osorio.
In March 2011, Horta-Osorio took over the reins. He was then faced with the bank’s first provision for payment protection insurance of £3.2bn in May that year. The bank’s total bill has since topped £17bn.
In November Horta-Osorio decided to take leave of absence after the bank’s struggles took its toll.
He returned to work in January 2012 fighting fight and ready to begin his work at restructuring the lender.
Government begins selling stake...
In September 2013, the government started to gradually sell its shares in Lloyds, reducing its holding to 39% from 43% for technical results. The stake is then cut to 33% with the sale of more than £3bn worth of shares at 75p each, above the target price of 61.3p needed by the government to generate a profit.
As Lloyds continued to show further recovery, the government sold another £4.2bn worth of shares at 75.5p in March 2014, bringing its interest down to 24%.
In August more than 7,5000 shareholders launched a court action against Lloyds over its HBOS takeover that led to the bank's bailout. The shareholders, which formed a Loyds Action Now group, said they lost £12bn as a result of the HBOS acquisition.
At the end of 2014, then-Chancellor George Osborne announced a plan to resume the sell-off of its stake in Lloyds following a brief hiatus.
Lloyds resumes dividends...
Lloyds resumed its dividend payments in February 2015 for the first time since its bailout as the bank announced a fourfold rise in annual profits of £1.8bn. Total dividend payments amounted to £535mln.
The same month the government sold a further 1% holding in Lloyds for £500mln, taking its stake to 23.9%.
In October, George Osborne unveiled plans to offer the public cut-price shares in Lloyds.
Osborne postpones sale of Lloyds shares…
In January of last year, Osborne postponed the sale of the last tranche of Lloyds shares, blaming market turbulence, as the bank’s shares fell to 64p.
Philip Hammond took over from Osborne as Chancellor in June 2016 after the UK voted to leave the European Union.
David Cameron had decided to step down as Prime Minister after the Brexit vote. When Theresa May succeeded Cameron, she appointed Hammond to handle the country’s finances instead of Osborne.
Hammond then decided to abandon his predecessor’s plans for a cut-price sale to the public last October. He said the shares would be sold directly into the market with the aim of getting rid of the government’s holding over the next year.
By December 2016, the government’s stake was down to 7%. Its holding shrunk to 3% in March 2017 and to 2% in April before finally completing the sale this week.
The bank’s full return to private ownership came after Lloyds reported its highest full year pre-tax profit in a decade in February and promised to increase dividends over the medium term. It was followed by a strong first quarter last month.
Misconduct and legacy issues remain...
While Lloyds has come a long way since its bailout, it is not out of the woods yet as it tackles mis-selling scandals and its HBOS Reading fraud case.
In March, Lloyds set aside a further £350mln to cover claims for mis-sold payment protection insurance after the Financial Conduct Authority extended its deadline for making new complaints to August 2019. The bank’s total bill so far amounts to £17.4bn.
The bank has also put aside a £100mln provision to reimburse victims of fraud at HBOS's Reading branch.
Six people were jailed earlier this year for the fraud which involved two former HBOS bankers who siphoned off money from struggling businesses to fund lavish holidays.
The HBOS debacle escalated in April after it emerged that two former employees of the subsidiary face prosecution for a suspected cover up of fraud.
TV star Noel Edmonds is seeking £73mln in compensation on claims he suffered significant economic losses and damage to his reputation as a result of the HBOS fraud. He has accused the bank of “foot dragging” making compensation payments.
Lloyds said in a statement yesterday that it was on track to begin making its first compensation offers before the end of May and will make payments by the end of June.
Last week it emerged that Lloyds also faces a £82mln hit in compensation for investors who were mis-sold investment products as “low-risk” that turned out to be complex and performed poorly.
The bank has written to 7,000 customers holding accounts with Lloyds and its investment arm, Scottish Widows, following complaints over the performance of products sold to them, including the Acorn Market Linked Deposit and Protected Capital Solutions Funds.