TSB shares to float: what is on offer for retail investors?

 
       

  
  
   
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    TSB is offering one free share for every 20 on the condition that investors hold the extra stock a year     
 
        Briefing  
    
    Tuesday, May 27, 2014 - 11:06am  
       Lloyds Banking Group has announced plans to float a quarter of its TSB business on the London stock market, including free loyalty shares as a sweetener for retail investors. TSB, which became a  standalone business  last September, has 631 branches and 4.5 million retail customers, making it the seventh largest retail bank in the UK. The sale is expected to value the bank at around £1.5bn, but it comes as City analysts warn of a waning interest in stock market flotations.  
  Why is Lloyds selling shares in TSB? 
 Under European Commission competition laws, Lloyds was required to sell a portion of its business when it received £20.5bn of  rescue capital from UK taxpayers  in 2009. Lloyds had planned to sell more than 630 branches, rebranded as TSB Bank, to the Co-operative Bank for £750m in July 2012 – but this deal fell through when the  Co-op discovered a £1.5bn black hole  in its own finances. Lloyds therefore decided to continue with the rebranding and sell TSB Bank through an initial public offering. Lloyds, which is still 25 per cent owned by taxpayers, must sell its remaining stake in TSB before the end of 2015. 
  When do TSB shares go on sale? 
 The sale is set to take place next month, with the majority of shares offered to institutional investors. The bank also hopes to sell between 15 and 30 per cent of the shares to ordinary investors through intermediaries. 
  What is on offer for investors?  
 TSB has warned that it will not be in a position to pay dividends until 2017, acknowledging that this could affect the valuation of the business. As a sweetener, retail investors are being offered one free share for every 20 they subscribe to, up to a maximum of £2,000, on the condition that they hold the extra stock for at least one year after the listing. 
  Why the three-year dividend blackout? 
 TSB plans to plough money back into the business in a bid to grab market share from its rivals on the high street. Spare profits will be reinvested in infrastructure, additional branches and advertising, says  The Times . Politicians and regulators are hoping that TSB will provide a boost for competition in retail banking, where the market for current accounts is still dominated by five big names: Lloyds, HSBC, Barclays, RBS and Santander. 
  Will TSB succeed? 
 António Horta-Osório, Lloyds Banking Group chief executive, has promised TSB will be a "real challenger on the high street". It is a completely clean bank, he says, untainted by the financial crisis. It has a national network of branches, a strong balance sheet and significant economic protection against legacy issues, he added. TSB is apparently hoping to entice a net 1.5 million primary current accounts from rivals, boosting its market share from 4.2 per cent to more than six per cent within six years. 
 But some analysts are sceptical that it will shake-up the market in its early days. Banking analyst Chris Skinner notes that several "challenger banks" are already being launched into the UK economy, such as Handelsbanken, Metro and Tesco. "Over time we'll end up probably again with just a few that actually succeed," he told the  BBC . 
 Other analysts have warned of a growing "flotation fatigue" following a recent rush from companies to list their shares, reports  The Guardian . The TSB flotation comes after institutional investors made losses on recent initial public offerings, including Just Eat, Pets at Home and Card Factory. Insurance group  Saga  recently priced its flotation at the bottom end of its price range, while retailer Fat Face decided to shelve its IPO after failing to get the price it wanted.  ·   
       Politics    Economy        Lloyds TSB    flotation