By Mark Kleinman, City Editor
George Osborne, the Chancellor, is considering selling part of the Government's stake in Lloyds Banking Group as soon as next week amid rising expectations in the City of a multi-billion pound share placing.
People close to the situation say that the Treasury, Lloyds and UK Financial Investments (UKFI), which manages the taxpayer's stakes in the UK's bailed-out banks, are discussing the prospect of a share sale that could take place within days.
Reports this week that a disposal of part of the Treasury's holding would almost certainly be delayed by concerns over the crisis in Syria were dismissed by Treasury insiders.
They acknowledged, however, that broader market risks, which also include the US Federal Reserve's forthcoming decision about whether to slow the pace of monetary stimulus, remained an "obvious factor in a decision".
"The reality is that a final decision about the timing of a sale hasn't been made yet but selling next week is a definite option," said one.
Sky News understands that:
:: JP Morgan, the investment bank advising UKFI on its privatisation strategy, has told the Treasury agency that a profitable sale for the taxpayer would be possible within days based on its assessment of the appetite for Lloyds shares among major institutional investors.
:: A number of major City shareholders have this week encouraged the Government to initiate a sale following the agreed takeover of Vodafone's stake in Verizon Wireless, which will see tens of billions of pounds returned to UK investors.
:: A share placing is unlikely until later in the week at the earliest as Lloyds' managers focus on the successful spin-off of TSB into a standalone banking network on Monday.
:: Aides to Mr Osborne are determined to realise a return from part of the Lloyds stake before the Conservative Party holds its annual conference in Manchester next month. One said that recent improvements in the economic outlook allied to the imminent privatisation of Royal Mail and a sale of taxpayer-owned bank shares were part of "a narrative" that would bolster perceptions of the Chancellor's stewardship of the economy.
:: Senior Liberal Democrats are seeking assurances over Lloyds' future role in lending to small and medium-sized companies before they endorse any sale of Lloyds shares, according to Coalition sources.
The exact size of an initial Lloyds sale has not been determined, although analysts believe it is likely to account for roughly 10% of the bank's shares, or one-quarter of the Government's stake. That would be worth just over £5bn at today's share price just before the market close of 75.41p.
During the last 12 months, Lloyds shares have more than doubled as investors have begun to price in the bank's likely future profitability and potential shareholder returns.
In meetings with investors following last month's interim results, Antonio Horta-Osorio, Lloyds' chief executive, is understood to have pledged that the bank would seek to pay out up to 70% of its profits in dividends within three years.
Lloyds has been prohibited from paying dividends to ordinary shareholders since its £20bn bailout in 2008, which followed its takeover of the stricken mortgage lender HBOS.
Mr Horta-Osorio told Sky News this week that it was "the right thing" for the Chancellor to begin selling Lloyds shares.
The price of any Government placing of Lloyds shares would be crucial to Mr Osborne's presentation of a sale. The Labour government paid an average market price of 73.6p for the stake, and while an imminent placing may not take place above that level, it would be possible to do so for a price well in excess of the 61p at which the stake is recorded in the national accounts.
The lower figure does not take into account £2.5bn of fees paid by Lloyds for implicit guarantees covering its toxic loans in the wake of the 2008 rescue.
The Treasury, Lloyds and UKFI all declined to comment on Saturday.
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