George Osborne will be scrutinising the share price of Lloyds Banking Group in the coming months as he prepares to sell off its shares to the public in what he has described as the biggest privatisation for 20 years.
The chancellor has been reducing the taxpayer stake in the bank by drip-feeding small quantities of shares on to the stock market when the price is above 73.6p, the level at which the taxpayer breaks even on its stake.
But his pledge to offer £2bn of shares at a 5% discount to the prevailing price means he could be facing a loss on the offering unless the share price starts to rebound.
The shares ended 2015 at 73.07p after dipping as low as 68p in December, although they traded above the crucial break-even point at certain times during the month.
Related: Lloyds bank share sale: all you need to know
In December, the Treasury extended its trading plan for six months but said it would be halted to ensure the government has enough shares for the retail offer. At the time, the government said the shares sold in this process had achieved an average price of over 81p.
“Osborne has a bit of a problem, it seems a little bit embarrassing to have achieved an average disposal price of [over] 80p on the drip and then to come to the market with a public offer at a 5% discount,” said Ian Gordon, banks analyst at Investec.
“He could justify it by saying in aggregate we’ve achieved a level above the average [73p] in price,” said Gordon.
Would-be shareholders have been registering their interest with stockbrokers and on the government website. If individuals hold their shares for a year they will be given a bonus share for every 10 held. Osborne has said individuals applying for less than £1,000 worth of shares will be given priority.
Related: Lloyds share sale attracts first-time investors, says Hargreaves Lansdown
A Treasury spokesperson said the government had made significant progress in selling off the Lloyds stake. “So far we have recovered more than £16bn from Lloyds shares for the taxpayer. We are determined to build on this success, and to continue to return Lloyds to the private sector and reduce our national debt. As part of this plan, we will launch a share sale which will be open to retail investors in the spring. This will allow hardworking people to buy a stake in our economy and help to build a share-owning democracy.”
Lloyds’ 2015 results are due in February and City analysts will be looking for signs the dividend will be raised, which could bolster the share price ahead of Osborne’s sell-off.
The taxpayer stake in Lloyds was 43% following its takeover of HBOS during the 2008 crisis and now stands at about 9%. The disposal of the stake began in September 2013 when £3.2bn of shares were sold at 75p to institutional investors. In March 2014, a further £4.2bn tranche was sold at 75.5p and in December 2014 the chancellor first began to dribble shares into the market as long as the level was above 73.6p.
The sell-off of the government stake in Royal Bank of Scotland is not as advanced as that of Lloyds. The first chunk of shares was sold in August when the taxpayer shareholding was reduced from 79% to just below 73% – at a £1bn loss. This is because the shares were sold at 330p – far less than the 502p average price taxpayers paid for each share during 2008-09.
The government wants to reduce the RBS stake to 25% during the lifetime of this parliament. Shares in the Edinburgh-based bank ended 2015 at 302p.
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