Government nears Lloyds Bank exit

Less than three weeks after the last big share sale, the government has offloaded another tranche of shares in Lloyds Banking Group to take its stake below 2%. It was widely expected, but traders are still clearly excited by the prospect of a major share overhang disappearing very soon.

According to the latest from Simon Kirby, economic secretary to the Treasury, UK Financial Investments (UKFI) on Friday sold over 694 million shares. We don't know the price, but if, for arguments sake, we assume it was the low of the day at 65.75p, the government would have bagged more than £456 million.

It's another move in the right direction for both Lloyds and the taxpayer, and Lloyds is the only London-listed bank share in positive territory Monday, up a fraction at 66.4p.

The Treasury has now almost recouped its entire investment in the high street lender when Gordon Brown ordered a bail-out in 2008. A 43% stake cost the Labour administration of the time £20.3 billion, but over £20 billion has been recovered, if you include dividends.

That money will help reduce the UK's national debt, currently around £1.7 trillion. So will further sales of the remaining 1.97% holding – those 1.41 billion Lloyds shares left in the government's investment portfolio are currently worth a little under £1 billion.

So long as there's no market correction before all the shares are sold – something UKFI and its advisors will be aware of – the government is only two decent share sales away from reporting a full exit from Lloyds, and at a profit, a result put at risk during the dark days of July 2016 and a slump to 47p.

There's little chance of the Lloyds share price popping like a champagne cork once the government's share overhang is removed, but it is no bad thing either. Passing this latest milestone on its return to normality following the financial crisis, will remove another area of risk for Lloyds' faithful shareholder base.

Lloyds shares have dipped in the past few weeks, in line with the market, but, as we reported recently, there's reason to be optimistic.

"We expect the stock to re-rate as resilience of margin and loan losses in a UK slowdown are proven," said UBS analyst Jason Napier in a note to clients. Read the rest of the article here.

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