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Black Horse back on its feet
The government has sold more of its shares in Lloyds. Did the taxpayer make a profit? Ben Judge reports.
The government has sold more of its shares in Lloyds.Did the taxpayer make a profit? Ben Judge reports.
This week, the British government sold another tranche of its shares in Lloyds, the bank that was bailed out by the state during the global financial crisis. The sale brings the state's share of the bank down to just 5.95% but more symbolically it means that it is no longer the bank's largest shareholder (BlackRock, the world's largest asset manager, now tops the list). The government has been quietly selling off its shares to institutional investors since October, having decided against a large-scale privatisation when the share price slumped at the start of 2016.
The sale price wasn't disclosed, but at 66p, Lloyds' closing price on Friday, the government would have raised £460,000, says Jill Treanor in The Guardian. At this rate, the government will have sold its entire stake by the summer, achieving its intention of returning Lloyds to private hands this year.
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The government initially invested £20.3bn for a 43% stake in Lloyds at a time when when the bank was set to collapse as a result of its merger with Halifax Bank of Scotland. The latest sale means the taxpayer is "on track for a £500m notional profit", says Alistair Osborne in The Times although that figure takes "no account of finance costs". Putting the money into the wider UK stockmarket instead "would have returned £37bn". And if we'd invested in UK residential property, the return would now be £26.8bn plus rental income, adds Patrick Hosking in the same paper.
Stick it in Amazon shares and we'd have had £380bn. So it's not exactly an impressive rate of return. Still, "no one goes into racehorse ownership expecting to make money", says Osborne. We would have got a lot less "had the Black Horse keeled over".
The sale is "good news for the British taxpayer, which wants its money back, and for the bank, which wants independence", says Lionel Laurent on Bloomberg Gadfly. But "operationally and strategically", not much will change when the sale is complete. Loyds' focus on "consumer banking, cost cuts and defending market share" is unlikely to shift, while the state "hasn't stopped Lloyds from resuming dividends and making acquisitions", including a recent £1.9bn deal to buy MBNA's UK credit-card business.
The bank's return to financial health is "quite a turnaround from the dark days of late 2008", says Jeremy Warner in The Daily Telegraph. That reflects the fact that Lloyds was "a fundamentally sound business a plain vanilla and relatively well-run UK retail bank". In contrast, RBS, which was bailed out at about the same time and is still 72% owned by the taxpayer, had "expanded aggressively and disastrously into investment banking". Unwinding its missteps in preparation for privatisation is proving much more difficult.
Top tips for 2017 from Investors Chronicle
The tobacco sector is going through a wave of acquisitions, says Investors Chronicle in its top picks for the coming year. Hence Imperial Brands could be a takeover target. The stock is cheap, with a dividend yield of 4.8% (3,474p).
Convenience food producer Greencore has grown strongly in recent years after betting on the UK food-to-go market. A major acquisition in the US means it may repeat its growth spurt across the pond (237p).
Shares in satellite group Inmarsat have taken a knock after a profit warning from a peer. But surging long-term demand for wireless connectivity and a 6.2% yield means the shares will come good again (742p).
Oil explorer Cairn Energy is not without risk. But a rising oil price and low production costs make it good value (220p). Energy and environmental consultancy RPS is also well placed to benefit from the recovery in the oil and gas sector (212p).
Aviva is trading at a discount to other insurers, but with a prospective dividend yield of 5.8%, Investors Chronicle thinks the shares are undervalued (478p). Fashion group Ted Baker faces concerns about its growth in Asia, but a strong brand will carry it through (2,774p).
The magazine's overseas tip of the year is pharmaceutical giant firm Merck ($61.94). Poor market sentiment towards US pharma is overshadowing the huge potential of its drug pipeline.
City talk
Donald Trump is a big fan of Twitter and one tweet from him can move markets. Hence "some company leaders are saying that their PR employees are up around 3am in case Trump sends out an early-morning tweet that could devastate the company's stock", says Karen Turner in the Chicago Tribune. Now iPhone users can add a "Trump tweet alert" to the Trigger Finance app, which will notify them the instant Trump takes aim at a stock they own. Demand has been "overwhelming", says Rachel Mayer, Trigger Finance's co-founder.
London's controversial Garden Bridge Trust, which wants to build a plant-covered pedestrian bridge across the River Thames, has just published its accounts, says Peter Walker in The Guardian. In the 17 months to the end of March 2016, the trust spent £26m (80% of which came from Transport for London) on "pre-construction" costs.
Building the bridge is now expected to "substantially exceed" the budget of £185m. The trust still needs to raise £56m from private donors, having managed to raise just £13m in the period the accounts cover. Even if the bridge is not built, "well over £40m would be lost to taxpayers", says Walker which is still rather less than would be lost if it does get built.
Mike Ashley and Michel Roux have been criticised for underpaying staff, but they are "a long way from being in the minority of employers", says Dominic Walsh in The Times. The Department for Business has published some excuses employers give for not paying the minimum wage, including "it's part of UK culture not to pay young workers for the first three months as they have to prove their worth' first", "I thought it was OK to pay foreign workers below the National Minimum Wage as they aren't British", and "she doesn't deserve the National Minimum Wage because she only makes the teas and sweeps the floors".
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