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Osborne puts Lloyds Bank sale on hold until markets 'calm down'

Published 28/01/2016

Chancellor George Osborne during a visit to the Airbus factory in Filton, Bristol.
Chancellor George Osborne during a visit to the Airbus factory in Filton, Bristol.

Chancellor George Osborne has put on hold the sale of the Government's final stake in Lloyds Banking Group.

The Chancellor said he would not give the green light to the sale until turbulence in global markets had subsided.

In a tweet, Mr Osborne said: "We'll build a share owning democracy. So British people can buy Lloyds shares but we'll only sell when turbulent markets have calmed down."

David Cameron pledged during the general election to sell the final part of the government's stake, which was expected to raise £2 billion.

Details of the sale - set be one of the biggest privatisations since British Gas and BT in the 1980s - were announced last October.

It was hoped that the sale would happen in the spring, but banks have faced tougher trading in the wake of the market turmoil caused by a slowdown in the Chinese economy.

The Government bought Lloyds shares for 74p when it used taxpayers' money to bail out the bank as it looked to bring stability to the industry at the height of the financial crisis.

However, the Lloyds share price has fallen from 78p to 64p since October, meaning shares would have been sold at a substantial loss.

The Government owns just under 10% of Lloyds and 73% of the Royal Bank of Scotland.

The announcement poses questions as to whether the Chancellor will now put on hold any plans to sell its remaining stake in RBS.

Laith Khalaf, analyst at Hargreaves Lansdown, said " This will be a big disappointment for the hundreds of thousands of investors who had queued up for a chunk of Lloyds, but taking a big loss on selling shares when markets are low was always going to be a bridge too far for the Chancellor.

"The fall in the Lloyds share price has left them around 10p below what the Government thinks it needs to break even, and together with the planned 5% discount and bonus share scheme would have meant the Chancellor putting his hand in his pocket, so now he looks to be pinning his hopes on a recovery in markets later in the year."

The announcement comes as analysis by the Press Association revealed that sales of publicly-owned assets, including Royal Mail and Eurostar, raised more money for the Government in 2015 than any other year in history.

RBS and Santander revealed further pain in the long-running PPI scandal on Wednesday, with RBS setting aside £500 million for mis-selling claims and Santander facing a £450 million PPI charge.

In his Autumn Statement, Mr Osborne said the Government planned to sell a further £25 billion of RBS shares, as it ramped up its efforts to dispose of taxpayer stakes in high street banks.

The Government also reiterated that it would sell £2 billion of RBS shares to retail investors in the spring, underpinned by a nationwide advertising campaign.

A spokesman for Lloyds Banking Group said: "The Government has already been able to progressively reduce its stake in the group from 43% to just 9% today, returning over £16 billion to taxpayers at a profit.

"This reflects the hard work undertaken over the last four years to transform the group into a simple, low-risk and customer-focused bank.

"The timing of any future retail sale is a matter for the Government. Our focus is on moving the group forward so that it can continue to be profitable and deliver sustainable returns to all our shareholders."

Mr Osborne insisted: "We will sell Lloyds to the British people but we will do so when the time is right."

A Downing Street spokesman said: "It's important that any share sale delivers value for money and we have to take account of current market conditions."

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