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TSB to float next month with teaser for small investors TSB to float next month with teaser for small investors
(about 2 hours later)
Lloyds Banking Group is floating 25% of its TSB subsidiary next month with up to a fifth of the shares expected to be snapped up by retail investors.Lloyds Banking Group is floating 25% of its TSB subsidiary next month with up to a fifth of the shares expected to be snapped up by retail investors.
To entice small shareholders, Lloyds is offering one free share for every 20 shares bought (up to £2,000) if the shares are held for a year after the flotation. Lloyds will sell a 25% stake in TSB initially that is expected to value the spun-off business at about £1.5bn, and has to sell down the rest by the end of 2015. To entice small shareholders, Lloyds is offering one free share for every 20 shares bought (up to £2,000) if the shares are held for a year, but the standalone TSB won't pay dividends until 2017. Lloyds will sell a 25% stake in TSB initially that is expected to value the spun-off business at about £1.5bn, and it has to sell down the rest by the end of 2015.
The bank has already held two rounds of investor meetings to drum up interest and reckons there is good demand for the shares – despite some signs of flotation fatigue in the London market. Last week Saga, the over 50s holidays and insurance group, made a disappointing stock market debut, launching its shares at the bottom end of the price range amid weaker than expected demand, and clothing chain Fatface ditched plans to float. After an abortive attempt to sell off its TSB branches to the Co-operative Group last year, Lloyds has decided to take its chances with the IPO market, which has seen a flurry of debuts this year but has shown some signs of flotation fatigue recently. Last week Saga, the over 50s holidays and insurance group, made a disappointing stock market debut, launching its shares at the bottom end of the price range amid weaker-than-expected demand, and clothing chain Fatface ditched plans to float.
TSB's chief executive Paul Pester said: "Market conditions willl affect Lloyds' decision to sell down, that's a question for them." But he added: "There is a strong, a good appetite for TSB. What's attracting investors is the simple straight forward [banking] model and it's protected from the past." The bank has held two rounds of investor meetings this year to drum up interest and reckons there is good demand for the shares, in particular from the US and far east. TSB's chief executive Paul Pester said: "Market conditions willl affect Lloyds' decision to sell down, that's a question for them." But he added: "There is a strong, a good appetite for TSB. What's attracting investors is the simple straight forward banking model – a highstreet, not a Wall Street bank – and it's protected from the past."
Lloyds' chief executive, António Horta-Osório, has promised TSB will be a "real challenger on the high street", describing it as a completely clean bank, untainted by the financial crisis. TSB has an indemnity from Lloyds against future misconduct charges relating to legacy issues. Lloyds has paid out billions of pounds to people who were mis-sold payment protection insurance. Lloyds' chief executive, António Horta-Osório, has promised TSB will be a "real challenger on the high street", describing it as a completely clean bank, untainted by the financial crisis. TSB has an indemnity from Lloyds against future misconduct charges relating to legacy issues such as the payment protection insurance mis-selling scandal. Lloyds has paid out billions of pounds to compensate people who were mis-sold PPI.
Pester expects some 15-20% of the first tranche of shares will go to the public. The prospectus will be published in mid-June. He admitted that TSB will not pay a dividend until 2017, disappointing investors looking for such payouts. "We intend to invest every penny we can in retail growth."Pester expects some 15-20% of the first tranche of shares will go to the public. The prospectus will be published in mid-June. He admitted that TSB will not pay a dividend until 2017, disappointing investors looking for such payouts. "We intend to invest every penny we can in retail growth."
With 631 branches, TSB has 6% of the UK bank branch network, but controls just 4.2% of the current account market. It hopes to attract 1.5m current accounts, to add to its 3.6 million existing customers, in the next five to six years to raise its market share to 6% – the level at which the Independent Commission on Banking, chaired by Sir John Vickers, concluded that a challenger bank could be a competitive force. Michael Hewson, chief market analyst at CMC Markets UK, asked: "Could TSB IPO be a float too far?" He went on to say: "The initial valuation has been set at around £1.5bn but could well be less given that the appetite for IPO's appears to be showing some signs of waning or summer fatigue." Hewson noted that of the IPOs launched this year only Poundland remains above its float price, while the remainder are all currently underwater.
Some 164 former Cheltenham & Gloucester branches are part of the package of branches rebranded as TSB since September, and are now offering current accounts. A new seven day switching service for current accounts was started by the industry - just as TSB was being spun out off Lloyds on to the high street. TSB has been winning business this way, helped by its account offering a 5% interest rate. Lloyds opted for Plan B after the collapse of talks with the Co-op last year – a move which would have created a 1,000 branch network and challenged the dominance of the current account market by the big four high street banks, which include
Lloyds.
Matthew Beesley, head of global equities at Henderson, said: "The promise of bonus shares for loyal shareholders tells you of their need to build a following, especially with so much banking issuance to come in the next few years. Lloyds is selling 25% of TSB now with further stake sales to come in fairly short order. They themselves face the prospect of the government selling its remaining 25% stake before the election in 12 months' time. Then there is RBS, with their own stake sales and the forced divestiture of their Williams & Glyn branches. With the outlook for the UK economy the best it has been for seven years, at least TSB has the advantage of going first."
With 631 branches, TSB has 6% of the UK bank branch network, but controls just 4.2% of the current account market. It hopes to attract 1.5m current accounts, to add to its 3.6 million existing customers, in the next five-to-six years to raise its market share to 6% – the level at which the Independent Commission on Banking, chaired by Sir John Vickers, concluded that a challenger bank could be a competitive force.
Some 164 former Cheltenham & Gloucester branches are part of the package of branches rebranded as TSB since September, which used to sell only mortgages and savings but are now also offering current accounts. A new seven day switching service for current accounts was started by the industry just as TSB was being spun out off Lloyds on to the high street. TSB has been winning new business, helped by its new Plus account that offers a 5% interest rate on the first £2,500 paid into the account.
Pester said he was surprised that many customers were not making use of the industry account switching service and opting to move accounts across themselves.
TSB was founded in 1810 in Dumfriesshire by the Reverend Henry Duncan as the Trustee Savings Bank, but it disappeared from the high street 18 years ago when it was merged with Lloyds – until its comeback last autumn.TSB was founded in 1810 in Dumfriesshire by the Reverend Henry Duncan as the Trustee Savings Bank, but it disappeared from the high street 18 years ago when it was merged with Lloyds – until its comeback last autumn.