20th June 2014
Lloyd Banking Group has floated a larger-than-expected stake in new challenger bank TSB, whose shares have been priced at 260p.
The initial public offering (IPO) sees TSB float with a market capitalisation of £1.3 billion and Lloyds make a £455 million profit. Lloyds was expected to sell 25% of its stake but it increased the sell-off to 35% – totalling 175 million of the 500 million shares that were issued – following strong demand.
Around 30% of the shares have been allocated to retail investors who will be able to purchase shares worth up to £2,000, however Hargreaves Lansdown head of equities Richard Hunter said due to demand applications have been scaled back.
Investors who applied for up to £2,000 shares have received their full amount rounded down to the nearest whole share – 769 shares correspond to £1,999.40 – but applications over £2,000 will receive 769 shares plus 30% of the excess amount.
‘The share offer proved extremely popular so TSB scaled back applications. Retail investors have been allocated in full up to £2,000, with some scaling down above that amount, but all have been rewarded by a 13% premium to the offer price in early trade,’ he said.
TSB is the markets biggest ‘challenger’ bank, so called because it challenges the dominance of the big five high street banks. Lloyds was forced by European rules to hive off TSB and dispose of 631 bank branches as a condition of its taxpayer bail-out.
This means TSB is already the seventh largest bank on the high street with 4.5 million customers, over 600 branches which make up 6% of all bank branches.
Lloyds group chief executive Antonio Horta-Osorio said: ‘The successful initial public offering of TSB is an important further step for Lloyds as we act to meet our commitments to the European Commission. The significant investor demand for shares in TSB, which reflects investors’ confidence in the prospects for the business, has meant that we have been able to set the offer size at 35%.’
He added that TSB has not only a national network of branches but ‘a strong capital base, robust liquidity and significant economic protection against legacy issues’.
‘It is already operating on the UK high street and is proving to be a strong and effective challenger, further enhancing competition in the UK banking sector.’
Paul Pester, chief executive of TSB Bank, said he was ‘delighted’ at the level of investor demand ‘especially among retail investors’.
‘It shows there is real appetite for a different kind of bank – a high street bank, not a Wall Street bank – which is focused on customer service,’ he said. ‘We are now focused on delivering on our strategy of bringing more competition to high street banking across Britain.’