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Lloyds Banking Group prices TSB shares lower than book value

British financial institution Lloyds Banking Group’s share flotation price of its 25% stake in retail bank TSB will range from GBP2.20 to GBP2.90 when the bank floats on the stock market later in June, it was announced on Monday.

According to reports, small investors will be offered free shares in the newly-listed bank. Investors who buy up to GBP2,000 worth of shares and hold for a period of one year after the flotation, will receive one free share for every 20 shares they buy.

TSB will reportedly be worth approximately GBP1.275bn, at the mid-point of the pricing range, when it joins the London stock market. According to analysts, the mid-point of the proposed share price range at GBP2.55 is a lesser value than the bank’s book value of approximately GBP1.5bn, which is the net value of its assets.

The final price of the shares is expected to be announced on or around 24 June, with conditional dealings in the shares starting on the same day.

With 631 branches and 4.5 million retail customers, TSB is said to be the seventh largest retail bank in the UK. It is being floated on the London stock market in order to meet European Union rules as a condition of Lloyds receiving state aid during the financial crisis five years ago. Lloyds is required to sell its remaining stake in TSB before the end of 2015.

It was also reported that TSB has agreed an indemnity from Lloyds against historical conduct-related losses, which means the bank will not have to pay out for past misconduct such as the mis-selling of loan insurance, which has cost Lloyds GBP9.8bn.

The bank is purportedly focussing on growth and does not expect to pay dividends to shareholders until at least 2017. TSB also anticipates expanding its balance sheet by 40% to 50% over the next five years, targeting a return on equity of at least 10%.

Sources from the banking industry reported that Lloyds is expected to sell TSB in three or four tranches. The initial offer price for TSB is said to reflect a recent cooling of investor interest in UK company flotations. However, it is anticipated that the TSB floatation will raise more than Lloyds previous plan to sell the branches to the Co-operative Bank for GBP750m, which collapsed when it emerged that the Co-operative Bank had a GBP1.5bn funding gap.


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