LLoyds shares - Tory 'offer'

bowlhead99

redux wrote: »

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.

The tabloids are not usually known for under-sensationalising world events when coming up with their headlines

Nor for giving financial advice. If you complained they would say it was not to be construed as advice. Merely pointing out that the government is going to give something away to sweeten the deal.

It is factual that there is a 'giveaway' if something is sold at below market price. So 'bonanza' is one way of putting it. But as investment in private companies comes with risk, and the discount / bonus required to get the placing away successfully is not going to be at the level which would eliminate that investment risk, it is not for everyone.

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.

The government is not being advised to sell because it is the best point in the next 10 years to exit one's investment in a bank. It is selling because the government has no public interest in holding a large majority share in a listed retail bank. Either it should own 20% of all UK banks for some reason of interventionism or nannying or power of veto, or none of them.

If it can get its money back on the investment it made when stopping the bank go under, it should do that. Arguably it could/should have done that earlier but there was no need to 'de risk' by selling it because it would be politically unsavoury and there was no real 'risk' to them in continuing to hold.

Mr_Prudent wrote: »

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.

Given disproportionate costs to buy, sell and hold tiny parcels of shares, a £250 minimum is a bit of a joke.

However, if the government is giving something away (not like Royal Mail where they sold it for lower than what was thought to be the fair price, but actually giving physical free shares and a discount against a freely determined market price) then they have to be fair to all of us and say that someone with only a small level of investment would not be excluded, so you can see why they might do that. Though clearly someone with only £500 to their name should not spend half of it on a share in a single company even if it is available at a slight discount.

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.

Yes, that's a nice conspiracy theory and I'm sure the government is just out to scam us out of a week's interest on a couple of thousand quid. I guess you could call it a tax that helps to subsidise the giveaway offer, and then they don't have to put your main income tax or VAT rate up. The only people paying this 'tax' will be those participating in the offer and being handed a discount / bonus.

So there is nothing to make a fuss about so far as I can see. If they are doing a £4bn retail offer as part of the overall £9bn offer as mentioned in the BBC article, that would allow a £1000 investment by 4 million people. As Lloyds shares have been on the market for decades and were available at 25p a few years ago, it would be surprising if by this point there were 4 million people who would like the shares and did not already have as many as they want.

Certainly my 95 year old grandfather will not be choosing to participate, and neither will the homeless person that sits outside my local Lloyds cashpoint machine and neither will any of the under-18s. So, 4 million people wanting £1000-worth may be asking a lot. Maybe easier to find 400,000 wanting £10,000 worth, if the discount and /or bonus is big enough. Do you really think there are half a million people out there who want to buy £10,000 of shares in a single company to grab a small bonus if they can stomach holding that amount of shares in a single company in the banking sector for a year? Perhaps not. So fears of massive oversubscription are probably unfounded.

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.

One would presume that none of the parties want to run Lloyds as a state owned bank and each would be keen to be the one that said they successfully sold it back to the market at a profit over the original buy-in price of 70-odd pence.

In doing so, the political story that they helped the public participate in a purchase scheme, rather than 'selling off our assets', is a nice one. So they would be keen to support a retail offer. To support a retail offer of some shares in a pre-existing, already-listed company, you need a sweetener to make it worth the public's while. So, I am guessing Lib or Lab or any number of combos would support it or something similar to it. Apart from perhaps UKIP or BNP who would presumably prefer it were part-owned by the British government, rather than fully and freely floated on the stock markets where filthy foreigners could buy in and take over all our "national treasures" for the right price.

At the moment Labour have implied they would not support it per Archi's comment, but the logic above suggests it would be in their interests to do so. However, they are BOUND to disagree with a lot of things the government do. It is election season. They can't publicly say "yes, that's a good idea you have there Cameron, that's exactly what we would have done too".

Lakeuk

The retail offer headlines/speculation do come across as ending up with similar media outcry as the Royal Mail offer, max £10k but priority to those going for £1k. Free shares after a year upto £200, so that pretty much only on stakes upto £2k.

I'd expect alot would register for around £1k as traditional paper based shareholders to which dealing costs are higher, they'll need to hang on for a long time to get value from them, although if your main interest maybe the dividend in which the likelihood is it'll out perform what you'd get in an interest baring bank account.

If you have £10k you wanted to put into Lloyds would put it in this offer risking getting nothing, or put a lower stake in the offer (mainly for bonus shares) and put rest on through open market if any dips came along to make it worth while. (question for general discussion not advice)

bowlhead99

Lakeuk wrote: »

Free shares after a year upto £200, so that pretty much only on stakes upto £2k.

If you have £10k you wanted to put into Lloyds would put it in this offer risking getting nothing, or put a lower stake in the offer (mainly for bonus shares) and put rest on through open market if any dips came along to make it worth while. (question for general discussion not advice)

When the media speculation turns into actual fact (e.g. the max free shares is known to be £2k) then that amount of max free shares will be the sweet spot. Less gives up free shares. More does not get the same benefits.

So if I had £10k I wanted to put into Lloyds right now, but knew I could get free shares on £2k by waiting for the offer, I would invest £8k right now and leave the other £2k for the offer to get £2.2k 'worth' of shares at that point.

Unless the discount is known and substantial I would not wait to deploy the other £8k, if I wanted to invest now. Similarly I would probably not wait for 'dips'; either I want the shares at their current price, which you are asking me to assume that I do - or I don't. Today's price might be the lowest price for the next five years and if I believed in the company that is what I would like to think.

As it is, the above is just a hypothetical reply to your hypothetical situation, discussion purposes only like you say. I don't have £10k that I want to put in Lloyds ordinary shares right now.

I do still have a good chunk of their prefs though (LLPC) - albeit reducing as I have been a seller rather than a buyer over the last year - which have done particularly well as Lloyds's financial strength has returned while interest rates stay low. I might use some of the proceeds of selling out of some of them to buy a few ordinaries in the discount offer, but it would be a lot less than £10k though, maybe a thousand or two.

Mr_Prudent

Quote: “Yes, that's a nice conspiracy theory and I'm sure the government is just out to scam us out of a week's interest on a couple of thousand quid”

You multiply that by the huge number of people who are going to have to wait to get their cash back and that amounts to a substantial amount of money for whoever handles the deal for the government.

Quote: “So fears of massive oversubscription are probably unfounded.”

Yeah right. We will see!

bowlhead99

Mr_Prudent wrote: »

Quote: “Yes, that's a nice conspiracy theory and I'm sure the government is just out to scam us out of a week's interest on a couple of thousand quid”

You multiply that by the huge number of people who are going to have to wait to get their cash back and that amounts to a substantial amount of money for whoever handles the deal for the government.

Cash temporarily lodged for the benefit of a client for a week while allocations are ascertained is not something that an investment bank can make a lot of money on. If we assume they have your £2000 surplus funds and can deploy them at 0.5% base rate interest (£10 a year), that is twenty pence, for the week.

So, you have 'suffered', twenty pence in total. While for every thousand pounds you get to deploy, you will get a hundred pounds worth of free shares (subject to going through with the year's commitment), and likely a discount from the government on today's shares you buy which may equate to tens or hundreds of pounds depending how much you actually get allocated. So, I don't think you could say that the 20p lost interest is all a big scam.

You are right that if the investment bank placing the funds gets to keep the 20pences, that's a lot of 20 pences. The 20 pence on your two thousand pounds excess subscription, grosses up to a whole ten thousand pounds on a hundred million excess subscriptions.

Presumably this outrageous sum of money potentially 'made' by the agent will be estimated and considered by the government, and taken into account when coming up with the fee they actually pay, of several million.

Quote: “So fears of massive oversubscription are probably unfounded.”

Yeah right. We will see!

I assume you don't have any, you know, "facts" to back up your assertion that it will be massively oversubscribed. Do you think that the general public would really love to go and buy £4 billion pounds of Lloyds shares but have simply never got around to doing that in the last twenty to ninety years of their life?

The government will simply offer a discount to create demand that was not otherwise there, but there is little point in offering such a large discount as to create double the demand they need, because that will put less money in their own pocket. Stranger things have happened but you are right: we will see.

redux

bowlhead99 wrote: »

You are right that if the investment bank placing the funds gets to keep the 20pences, that's a lot of 20 pences. The 20 pence on your two thousand pounds excess subscription, grosses up to a whole ten thousand pounds on a hundred million excess subscriptions.

But probably less than the cost of issuing all the refund cheques.

I nearly said postage as well, but presumably everyone gets a letter whatever the outcome of their subscription.

Mr_Prudent

Quote: “I assume you don't have any, you know, "facts" to back up your assertion that it will be massively oversubscribed. Do you think that the general public would really love to go and buy £4 billion pounds of Lloyds shares but have simply never got around to doing that in the last twenty to ninety years of their life?”


No more facts then you have in thinking it will not be oversubscribed, but believe it or not everyone is entitled to an opinion, despite you thinking your opinion is the only one that matters.
I enjoy your posts Bowlhead but you really do need to come down of that elevated platform of yours. We’re not all super experienced investors who work within the financial industries (an image you like to project) so a little more humility and lot less pomposity would be welcomed.

Thrugelmir

veryintrigued wrote: »

This cant be good news for existing share holders?

Existing tranches of Lloyds shares have been placed with Institutional investors at below market price. The over hang of shares will continue to hold the share price back. Best to place them while the market is strong. No guarantees that Lloyds will be highly profitable in the future.

bowlhead99

According to a few media sources, they've said 'at least' 5% (some noting that there is sufficient headroom above the original buy price to give more while still achieving the goal of 'getting our money back'). And then a bonus of 'up to' £200 if you keep for a year.

With a wide retail offer involving potentially millions of people, and small amounts involved, they wouldn't be able to to administer a minimum set period of ownership and prevent trading or recoup discount if you did trade. Plus, imagine the headlines when a little old lady who was sold shares by the government whose value is dropping by the second and she needs her £500 to heat her home for the winter and she's not allowed to sell. So a separate bonus for holding longer, rather than trading restrictions, seems the only way they could go when dealing with individuals rather than institutions.

We'll just have to wait and see what the terms are, and more importantly what financial updates we get from the bank or what issues occur in the banking sector and what impact a new government has on the markets etc etc. The fundamentals of what you're buying into (along with the market price for it), are more important than whether the discount is 5% or 8% or 10% off the 'going rate' for the shares.

One of the BBC (I think) articles made the point that the finances of a 21st century bank are more complex for a layman to understand than the finances of any number of utilities privatised back in the Thatcher days. There is no way millions of punters laying out their £1k really understand what is going on under the hood - including various accountants, economists etc - and at only £250 to £10000 a pop, it can't possibly be worth their time educating themselves to find out.

If the government wasn't looking for some feelgood happy capitalism feeling to spread across the populace, it would perhaps have been more sensible to just place the shares to institutions as they have done before and have the public own them through their pensions along with all the other companies they own in their pensions.

I don't count myself among the experts in bank finance who might be qualified to make a proper decision on investment in Lloyds either. But I will at least read the prospectus and the terms of the offer properly which I guess will put me above 90% of the retail subscribers. If only that were actually a guarantee of making more or losing less...

veryintrigued

According to the Telegraph:

http://www.telegraph.co.uk/finance/newsbysector/banksandfinance/11575945/Lloyds-profits-fall-by-155m-on-TSB-sale-costs.html