Treasury injected £20.3bn to prop up bank in 2008 after its troubled takeover of HBOS but now public stake stands at zero

This article is more than 3 years old

This article is more than 3 years old

The government has sold its remaining shares in Lloyds Banking Group in a landmark moment for the banking sector almost a decade after the £20.3bn bailout of the high street lender.

It will be confirmed on Wednesday that the Treasury has finally extricated itself from its shareholding in the bank – owner of Halifax, Bank of Scotland and Scottish Widows –which it rescued during at the depths of the financial crisis.

At its peak, the government owned 43% of Lloyds but through a series of share sales this has now fallen to zero. This is in stark contrast to Royal Bank of Scotland, which was rescued at the same time and in which taxpayers still own a stake of more than 70%.



Noel Edmonds accuses Lloyds of 'foot dragging' over HBOS payouts Read more

Philip Hammond, the chancellor, has already said the government has recouped all of the £20.3bn used to buy shares in Lloyds, which rescued HBOS at the depths of the financial crisis.

While Hammond’s figures do not include the £3.6bn cost of borrowing the bailout funds, the bank’s chief executive, António Horta-Osório, told last week’s annual general meeting that the government would make at least £500m from its investment in Lloyds.

The chief executive will now face questions about whether he intends to stay on at the bank, which he joined in 2011 and immediately started to tackle the payment protection insurance mis-selling scandal which has cost Lloyds more than £17bn.

He has received about £40m through salary, pensions, benefits and share bonuses since taking the helm and the removal of the taxpayer stake means he will have met the conditions attached to some of those bonuses, which will be released next year.

The turnaround of the bank has in part been fuelled by Horta-Osório’s cost-cutting programme, which has taken a toll on jobs. Some 57,000 job cuts have been announced since 2008, although some of these were the result of merging Lloyds and HBOS before he arrived.

Ian Gordon, an analyst at Investec, said “significant progress has been made over the past eight years” since the bailout. Then, he said, the bank had an “unsustainable” loan to deposit ratio of 177% – which made it reliant on borrowing on the markets to fund its growth. This has now fallen to 107% – almost a balance between its savers and depositors and requiring less funding on the financial markets.

Nearly £200bn of problem loans and businesses have been sold off and the bank has given up its international ambitions. Once operating in 30 countries, it now remains in just six – leaving it open to concern that it is vulnerable to any economic slowdown in the UK caused by Brexit.

Lloyds has a 25% share of UK current accounts, 22% of retail deposits and 21% of mortgages, and as a result of the takeover of credit card company MBNA it will have a 26% share of credit card lending.

However, Gordon said the bank’s outlook was “set fair” and that it could produce stable earnings in the future.

Neil Woodford, one of the City’s most respected fund managers, admitted last week he had bought shares in Lloyds after shunning the banking sector for many years. In 2014 he sold his holding in HSBC because of concern about the fines it faced.

Lloyds shares closed on Tuesday at 70p – below the 73.6p average price that taxpayers paid them in three stages during the crisis – and, Gordon pointed out, similar to the 69p level they were trading at when Horta-Osório was appointed to the role.

While the last chunk of shares have been sold at a loss, below that breakeven price, the bulk were sold at a profit. The fall in the share price meant that the government’s intention to sell the last shares in a discounted share offering to the public had to be abandoned.

Lloyds is also battling with the legal issues. As well as the ongoing PPI scandal, it is currently facing criticism of its handling of compensation to the victims of the fraud in the HBOS Reading branch. Among those complaining is the TV celebrity Noel Edmonds.

Facebook Twitter Pinterest An HBOS office sign in the City of London. Photograph: Linda Nylind/The Guardian

Timeline

September 2008 A £12bn takeover of HBOS by Lloyds TSB comes just days after the collapse of Lehman Brothers sent shockwaves through financial markets. The Financial Services Authority, then the City regulator, says the deal will “enhance finance stability”.

October 2008 As financial instability mounts the government announces a bailout of the banking system. Lloyds TSB renegotiates the takeover of HBOS to 0.605 Lloyds TSB shares for every one HBOS share, from 0.833 a month earlier.

January 2009 Lloyds Banking Group is created from the purchase of HBOS by Lloyds TSB. The government begins the first of a three-tranche bailout of the group, pumping in £13bn.

May 2009 Sir Victor Blank is forced to step down as chairman of Lloyds.

June 2009 The government puts in a further £1.5bn.

December 2009 The government backs cash call, buying £5.8bn of shares. Total rescue deal amounts to £20.3bn. Taxpayer stake stands at 43%.

March 2011 Eric Daniels leaves and António Horta-Osório takes over as chief executive.

May 2011 Lloyds takes first provision for payment protection insurance of £3.2bn. The bank’s bill eventually tops £17bn.

November 2011 Horta-Osório takes leave, citing fatigue. He returns to work in January.

September 2013 The taxpayer stake gradually reduces from 43% to 39% for technical results. It is cut to 33% when a formal sell-off of Lloyds shares begins:£2.3bn of shares sold to big City investors at 75p a share.

March 2014 £4.2bn of shares sold at 75.5p, taking the taxpayer holding to 24%.

February 2015 Dividends to resume for first time since the bailout.

December 2014 George Osborne announces a plan to dribble out shares into the market.

October 2015 Osborne unveils plans for a cut-price sale to the public.

October 2016 Philip Hammond, the new chancellor, abandons his predecessor’s pledge to sell cut-price shares to the public.