Lloyds Banking Group said it planned to sell a further 15 per cent of its stake in wealth manager St James's Place to swell its equity capital 500m pounds.
Lloyds explained that if it placed its 15% stake with buyers, with the shares closing on Wednesday at 640p, the bank would receive £493m, for a capital gain of around £40m on its purchase price that would increase its core tier 1 capital by an equivalent amount.
The bank explained that this was equivalent to just a single basis point benefit to its regulatory capital requirements, under current rules. However, on the basis of impending European rules, under a pro forma fully loaded Capital Requirements Directive IV basis, it estimated that the placing would increase Lloyd's common equity tier 1 capital by approximately £500m, which equates to an approximately 16 basis points benefit.
Subscribe to MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE
The latter magnitude is the result of the increase in the lender's liquidity - and capital - as a result of the sale together with the now lesser capital requirements given the 'proportional' exit from that business. Under CVRD IV a bank must hold a minimum of 8% good-quality capital against its assets, of which just over half must be Tier 1, the highest-quality, lowest-risk form.
This is because the bank has reduced its ownership stake in an asset that presents a potential risk, as currently Lloyds accounts for St James's Place as an associate and reflects Lloyd's share of the St James's profit within Lloyd's income statement.
Lloyds sold a 20% stake in St James's Place in March this year, and had been tied into a 12-month lock-up period that it said had been waived for it to make this sale, although it will continue to apply for the remainder of its holdings in St James Place.
Following a likely 15% sale, which is being brokered by Bank of America Merrill Lynch, Lloyds will be left with around 21% of St James Place.
Lloyds said the sale will also increase the free-float of the company, thereby improving liquidity.
Shares in Lloyds banking Group were unchanged on the news, with the announcement having been released at 16:36 on Wednesday.
Who is the richest person in the world?
The top five richest people in the world have a combined net worth of $825 billion. Who takes the crown for the richest person in the world?
By Vaishali Varu Published
Top 10 stocks with highest growth over past decade - from Nvidia, Microsoft to Netflix, which companies made you the most money?
We reveal the 10 global companies with the biggest returns since 2013. One firm has posted an astonishing 9,870% return, meaning a £1,000 investment would now be worth almost £82,000.
By Ruth Emery Published