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.
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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.
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