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TSB to float next month with teaser for small investors | TSB to float next month with teaser for small investors |
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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, but the standalone TSB will not issue dividends until 2017. Lloyds will sell a 25% stake in TSB initially and has to sell down the rest by the end of 2015. Some analysts now expect Lloyds to make a loss on the sale of the 200-year-old brand, with the shares likely to be priced at less than TSB's book value of £1.5bn. | 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 will not issue dividends until 2017. Lloyds will sell a 25% stake in TSB initially and has to sell down the rest by the end of 2015. Some analysts now expect Lloyds to make a loss on the sale of the 200-year-old brand, with the shares likely to be priced at less than TSB's book value of £1.5bn. |
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. Clothing chain Fatface ditched its 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. Clothing chain Fatface ditched its plans to float. |
Cenkos Securities analyst Sandy Chen said: "TSB's IPO might price at a significant discount to book. Our concerns centre on profitability, both current and future." | Cenkos Securities analyst Sandy Chen said: "TSB's IPO might price at a significant discount to book. Our concerns centre on profitability, both current and future." |
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 will 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 high street, not a Wall Street bank – 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 will 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 high street, 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 such as the payment protection insurance mis-selling scandal. Lloyds has paid out billions of pounds to compensate people who were mis-sold PPI. | 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 said. | 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 said. |
Michael Hewson, chief market analyst at CMC Markets UK, said the TSB IPO could be a "float too far. The initial valuation has been set at around £1.5bn but could well be less given that the appetite for IPOs appears to be showing some signs of waning or summer fatigue." | Michael Hewson, chief market analyst at CMC Markets UK, said the TSB IPO could be a "float too far. The initial valuation has been set at around £1.5bn but could well be less given that the appetite for IPOs 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. | Hewson noted that of the IPOs launched this year only Poundland remains above its float price. |
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. | 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 face the prospect of the government selling its remaining 25% stake before the election in 12 months' time. | 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 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." | "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 4.2% of the current account market. It hopes to add to its 4.5 million existing customers, in the next five to six years and 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. | With 631 branches, TSB has 6% of the UK bank branch network, but controls 4.2% of the current account market. It hopes to add to its 4.5 million existing customers, in the next five to six years and 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. |
Former Cheltenham & Gloucester branches, 164 sites, 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 £2,000 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. | 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. |
Chen said: "TSB intends to grow its balance sheet by 40-50% over the next five years, mainly emphasising growth in mortgages funded by growth in current accounts. But if this costs TSB 5% deposit teaser rates in order to get those current accounts, we can't see how TSB will make much money with the average 2-year fixed rate on 75% LTV [loan-to-value] mortgages standing at 2.5%." | Chen said: "TSB intends to grow its balance sheet by 40-50% over the next five years, mainly emphasising growth in mortgages funded by growth in current accounts. But if this costs TSB 5% deposit teaser rates in order to get those current accounts, we can't see how TSB will make much money with the average 2-year fixed rate on 75% LTV [loan-to-value] mortgages standing at 2.5%." |
TSB was founded in 1810 in Dumfriesshire by the Rev 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 Rev 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. |
• This article was amended on 29 May |