Lloyds Banking Group PLC (ADR) (NYSE:LYG) (LON:LLOY) announced that it will give investors one free share of TSB for every 20 that they buy at banking unit’s IPO scheduled for next month. Lloyds is required to completely sell its stake in TSB, with 600 retail branches and 4.5 million retail customers, by the end of 2015 as part of the aftermath of the financial crisis and the bank’s 2009 government bailout.
“The decision to proceed with an initial public offering of TSB is an important further step for the group as we act to meet our commitments to the European Commission,” said Lloyds CEO António Horta-Osório, reports Max Colchester at The Wall Street Journal.
TSB prospectus expected in mid-June
While the IPO prospectus won’t be available until sometime next month, Lloyds Banking Group PLC (ADR) (NYSE:LYG) (LON:LLOY) is expected to sell about 25% of TSB Banking Group PLC, and then sell its remaining stake over the next year and a half. TSB has a book value of around £1.5 billion, but it’s not clear what price-to-book ratio Lloyds will use when setting the initial price (Lloyds trades at about 1.35x). Considering the decision to tack on free shares to entice more investors to take part in the IPO, it wouldn’t be surprising if the bank also set a fairly attractive price to help move shares.
Qualivian Investment Partners Up 30% YTD; Long ORLY Thesis
Qualivian Investment Partners commentary for the second quarter ended July 30, 2020. Q2 2020 hedge fund letters, conferences and more “Short-term investors will accept a 20% gain because they didn’t spend the time to develop the conviction and foresight to see the next 500%.” - Ian Cassell Executive Summary Readers of investment letters fall into Read More
Since everyone knows that Lloyds Banking Group PLC (ADR) (NYSE:LYG) (LON:LLOY) has a deadline for selling off the rest of its stake, it has a strong interest in supporting TSB’s share price however it can, and a successful IPO is an important part of keeping investors interested.
TSB could grow faster than Lloyds once it’s spun-off
There has been speculation that the newer, low cost entrants into the UK’s retail banking market will be able to steal market share away from large banks like Lloyds Banking Group PLC (ADR) (NYSE:LYG) (LON:LLOY) and HSBC Holdings plc (ADR) (NYSE:HSBC) (LON:HSBA) by focusing on the retail branches that large banks are reducing to cut costs and improved customer service. Unloading all of TSB at the IPO wouldn’t be a smart move regardless (a glut in supply would tank the price unnecessarily), but if TSB can deliver on the promise of strong retail growth, Lloyds could stand to gain a good deal by giving TSB more time to prove itself to investors.