Government shares in Lloyds falls to under 3%
The UK government, which had to purchase £20.3 billion worth of shares in Lloyds Banking Group in 2008 as the financial crises began to bite, has announced today that it has sold £19.5 billion worth of these.
The move means the government now owns less than 3% of the banking group, which includes Bank of Scotland, Halifax, and Lloyds Bank.
Earlier this year, the government said it planned for the bank to enter the private sector completely within 2017.
It’s estimated that once the bank is completely privatised, the total profit for the Treasury will be around £1.5 billion, which the government will put towards paying off the national debt.
Lloyds’ share price has taken a hit
Laith Khalaf, senior analyst at Hargreaves Lansdown, says: “Lloyds’ share price was badly hit by Brexit; it plummeted by more than a third in the fortnight following the referendum result. Since then Lloyds has recovered much of its poise, thanks to some decent numbers from the bank itself and from the wider economy, and the shares now trade close to where they stood before the Brexit vote. The current share price is 68p, while on 23 June 2016 the stock changed hands for 72p when the closing bell rang for the last time before the referendum result was announced.”
Lee Wild, editor at Interactive Investor, Moneywise’s parent company, adds: “The government has now sold Lloyds shares worth almost £2 billion in 2017, further reducing the overhang which has acted as a partial cap on the share price. That’s good news, but low interest rates are not. Although Lloyds is in far better shape than many rivals, and paying an attractive dividend too, it will need an increase in borrowing costs and subsequent benefit to bank margins if the shares are to make more meaningful progress.”
Mr Khalaf also mentions another bank which had to be bailed out; RBS. He continues: “For the Treasury, the elephant in the room is of course RBS, which soaked up £45.5 billion of taxpayer funding during the financial crisis, more than twice the sum needed to prop Lloyds up. Progress has been slow at RBS, and the cost of US litigation still looms large in its immediate future.
“The RBS share price needs to double from its current level before the taxpayer breaks even on the bailout, and that isn’t happening anytime soon.”
The RBS share price currently stands at 236.20p.
If you own shares in a company, you’re entitled to a slice of the profits and these are paid as dividends on top of any capital growth in the shares’ value. The amount of the dividend is down to the board of directors (who can decide not to pay a dividend and reinvest any profits in the company) and they will be paid twice yearly (announced at the AGM and six months later as an interim). Dividends are always declared as a sum of money rather than a percentage of the share’s price. Although dividends automatically receive a 10% tax credit from HM Revenue & Customs (HMRC), which takes the company having already paid corporation tax on its profits into account. Dividends are classed as income and, as such, are liable for personal taxation and so shareholders have to declare them to HMRC.