A customer enters a Lloyds TSB bank branch, part of the Lloyds Banking Group in Loose, the UK. Lloyds will sell 25% of its TSB consumer bank in an initial public offering next month and plans to lure individual investors with bonus shares.
Bloomberg/London
Lloyds Banking Group, Britain’s biggest mortgage lender, will sell 25% of its TSB consumer bank in an initial public offering next month and plans to lure individual investors with bonus shares. The prospectus will be published in mid-June, the London- based bank said in a statement yesterday. Individual investors buying up to 2,000 pounds ($3,364) of stock will get one free share for every 20 they buy, as long as they hold them for a full year after the IPO.
TSB Chief Executive Officer Paul Pester said there was “strong appetite” for the offering and predicted individual investors will buy as much as 20% of the shares on sale. Speaking on a call with reporters, he declined to comment on the lender’s eventual valuation.
The IPO is the biggest by one of the so-called challenger banks that are trying to take on Britain’s four biggest lenders. TSB is going public as demand for IPOs shows signs of waning: last week, retailer Fat Face Group Ltd pulled its IPO and Saga sold shares at the bottom of the range used to canvas investor interest in the stock.
“This one would need to work for the other challengers to follow,” said David Moss, a portfolio manager at F&C Asset Management Plc in London, which oversees about 82bn pounds. “This needs to be a litmus test.” British regulators and politicians are seeking to boost competition in Britain’s consumer banking market, which is dominated by Lloyds, Royal Bank of Scotland Group Plc, Barclays and HSBC Holdings. The four banks control about 75% of the checking-account market, according to the Office of Fair Trading.
That regulatory push is encouraging smaller lenders to raise money for expansion, while Lloyds and RBS are being forced to sell branches by regulators after receiving government bailouts during the financial crisis.
OneSavings Bank, a specialist lender to landlords and small businesses backed by JC Flowers & Co, is preparing an IPO. Banco Santander SA is also weighing an IPO of its British operation. European Union regulators are forcing RBS to sell Williams & Glyn, a network of 314 branches, by 2017.
Lloyds had been required by regulators to sell TSB, which it acquired in 1995, by the end of 2013. Co-Operative Bank pulled out of a 700mn-pound deal to buy the operation in April 2013, forcing Lloyds to seek an extension of the deadline. That deadline and ebbing investor appetite for IPOs may force Lloyds to sell TSB at a discount to its book value, estimated to be about 1.5bn pounds by analysts at Oriel Securities.
“We haven’t been able to see much in terms of numbers yet, but those that were published today make us think that TSB’s IPO might price at a significant discount to book,” Sandy Chen, an analyst at Cenkos Securities in London, said in a report to clients.
TSB “is already operating on the UK high street and is proving to be a strong and effective challenger,” Lloyds CEO Antonio Horta-Osorio said.
TSB has 4.5mn customers and 631 branches, making it the UK’s seventh-largest branch network. The lender’s core equity Tier 1 capital ratio, a key measure of financial strength, will be 22% under the latest Basel rules.
TSB will also be protected from “historical conduct- related claims,” according to yesterday’s statement. Lloyds has so far set aside 9.8bn pounds, more than any other lender, to cover the cost of compensating clients mis-sold payment- protection insurance.
The lender plans to pay its first dividend in 2017. Pester said TSB will increase its balance sheet as much as 50% by boosting mortgage lending and expanding its checking-account operation.
“This is a business that we expect investors to buy and hold as we grow,” Pester said on the conference call. “My job is to get out there and explain the bank as it is to both institutional investors and retail investors and let them decide” on the valuation, he said.