LLoyds shares - Tory 'offer'

veryintrigued

This cant be good news for existing share holders?

Its certainly better value than the DRIP scheme too.

http://www.bbc.co.uk/news/election-2015-32366391

PeacefulWaters

I can't see any issue for existing shareholders that doesn't exist already with part-government ownership.

Out of interest, what do you see as poor value about DRIP?

veryintrigued

I guess my concern is that the share price will fall for existing holders.

Did the market get a whiff of this on Friday I wonder hence the 1.5% drop?

DRIP isnt poor value - but isnt as good value as buying shares at a discounted price

I wonder if the extra shares element on the 'offer' will result in volatility after the year is up too.

PeacefulWaters

veryintrigued wrote: »

I guess my concern is that the share price will fall for existing holders.

The ongoing sale of government holdings depresses the share price anyway and will continue to do so until the firm returns completely to private ownership.

Did the market get a whiff of this on Friday I wonder hence the 1.5% drop?

I would hope the market caught a whiff of it in the Budget announcement. The FTSE was down nearly 1% and Barclays were down nearly 2% on Friday. I think the Greeks are more significant than a 5% discount on a 5% stake of a firm which should equal a 0.25% dilution to existing shareholders.

The best thing for other shareholders would be a complete removal of government interference through ownership. The sale of a stake at a small discount accelerating that process can't be seen as a bad thing.

bowlhead99

They are only proposing to do £4bn as a retail offer within the wider placement. Lloyds's overall market capitalisation is £56bn+ making this somewhat 'small change'.

As noted in the article, the government already announced in last month's budget that they were going to be disposing of another £9bn, and selling down government ownership into private hands is a broadly positive thing.

Due to costs of trading, a retail customer getting LLOY shares at a few percent discount is perhaps not massively likely to immediately sell at market value suppressing the market value.

Similarly, a one-for-ten round of 'bonus shares', available to the retail customers who actually hold for a year, would only have potential to dilute other holders by half a percent or so, because the size of the sale is only one fourteenth of overall market cap. And presumably there would be no such dilution because the 'free shares' to encourage retail participation would not be issued by the company - but would instead be given by the government from their existing pot of unwanted shares - this sale is not an issue of new shares by the company.

You are right that the extra shares lock in / bonus is the type of thing that can have a market distortive effect. This could have volatility before the year is up because everyone is aware the end of the year is coming up and guessing what the potential stream or avalanche of disposals from small retail investors is going to be. Many will of course sell before the year is up because exiting a position at a good price is better than waiting for a free share while you lose money on your existing ten. Many will not sell at all because they won't feel the need to. The volatility is just people selling shares to other people and whether it creates a blip on the chart or not, it doesn't do you any damage as a long term holder.

The news is fine for existing holders IMHO. If you are in the minority of people who like the business enough to hold shares directly in it, you might relish the opportunity to acquire some more shares at a small discount / bonus.

Finally you are right that the advantage of DRIP (buying without fees, at market price) is not as good as buying at an actual discount and/or getting a free share after a lock-up. You could of course do both.

veryintrigued

PeacefulWaters wrote: »

The ongoing sale of government holdings depresses the share price anyway and will continue to do so until the firm returns completely to private ownership.

I thought it was (largely) the lack of profits that was hampering share price and dividend payment!

PeacefulWaters wrote: »

I would hope the market caught a whiff of it in the Budget announcement.

This discount sale was mentioned in the budget? I missed that!

bowlhead99

veryintrigued wrote: »

This discount sale was mentioned in the budget? I missed that!

No

The share price did not fall 1.5% on Friday just because of the market getting wind that the Government were placing some shares later this year, because the market already knew the Government were placing £9bn of shares because the Government said so in the budget.

The market didn't necessarily know what size of retail offer there would be or if/what discount might be done to encourage the retail offer along. As mentioned with the figures involved, the share price fall of 1.5% is too large to be attributable to someone 'getting a whiff'; there are plenty of other factors that move markets.

As a retail investor if I had been considering buying shares on Friday and had then 'caught a whiff' that shares in the company would be offered to me later in the year at a discount, I might have deferred my investment purchase to hear more about it. This could have a negative effect as my planned buy does not happen and therefore there's an excess of supply. But not 1.5% on the whole £56-58 billion.

Of course, depending on what happens to Lloyds price in the coming weeks it might be cheaper to buy Monday than buy at a discount to the then prevailing price at the placing. I wouldn't bet on it, so will not be rushing to do that.

redux

According to the Daily Mail: " what would be the largest privatisation bonanza since the Thatcher era."

Can this be construed as offering investment advice?

Given the actual potential price margins, the use of the word bonanza and harking back to large price jumps on flotation of a whole organisation seem rather over the top.

Edit: the HL website has broker opinion of 7 strong buy, 1 buy, 5 neutral, out of 13, and opinion improving over the last 3 months.

They could be wrong, but maybe the Mail could be right then, if people buy and hold, but on the other hand this might not seem the best moment for the government to be advised to sell.

Mr_Prudent

Think I heard on the news this morning that there would be a minimum investment of £250 and a maximum of £10000. I would bet that this will be massively oversubscribed as the lion’s share of the sell off will be offered only to institutions and you will be lucky to get the minimum allocation. Meanwhile any monies that have to be handed back to individual investors will sit around for a couple of weeks earning someone a nice little extra interest (not you) before you get it back.
All of this of course is dependent on the Cons getting back in and whether Lab would support it if they get in and any number of combinations in the event of a coalition.

Archi_Bald

Mr_Prudent wrote: »

All of this of course is dependent on the Cons getting back in and whether Lab would support it if they get in and any number of combinations in the event of a coalition.

Labour spokeswoman Angela Eagle sort of evaded the question from Andrew Neill on the Sunday Politics Show just now whether Labour would offer people a retail offer at a discounted price. She said Labour would want to sell the shares at the best price possible - another way of saying no.

redux

Archi_Bald wrote: »

Labour spokeswoman Angela Eagle sort of evaded the question from Andrew Neill on the Sunday Politics Show just now whether Labour would offer people a retail offer at a discounted price. She said Labour would want to sell the shares at the best price possible - another way of saying no.

It might also imply waiting.

If the shares are worth £10 in 3 years time, it may retrospectively appear to have been foolish to be in too much of a rush the sale in only a few months from now.

Not every investment decision is necessarily better under one party than another.

I'm assuming a retail sale would take 2 or 3 months to organise. Whereas just selling in the market can be done at any time. Looking at the share price for the last 18 months, can anyone honestly say they could have spotted the right moment to start the process for a retail deal?