Weekend reports suggest Sinapore's Temasek and overseas consortium interested in buying bank's shares
Banks are in focus as the week begins on a positive note for the stock market.
Lloyds Banking Group has been lifted 1.38p to 65.99p after reports that overseas investors were considering buying up some of the UK government's 39% stake. Former Standard Chartered boss Mervyn Davies was said to be heading up one consortium, while Singapore fund Temasek was also reported to have expressed preliminary interest. Gary Greenwood at Shore Capital said:
Please form an orderly queue. The weekend media carried a number of articles which suggested that an initial part sale of the government's 39% stake in Lloyds (worth around £18bn at the current share price) could come as soon as August of this year. It was also indicated that a sale to such investors would not just need to exceed the price at which the shares are held in the government's accounts (understood to be 61p per share), but would also need to be carried out at a premium to the prevailing share price, albeit perhaps still below the original government in-price (just under 74p per share) in order to satisfy value for money rules.
A sale to a small number of investors at a premium to the prevailing share price could help overcome investor concerns around value dilution for existing share holders and suggestions that it may be better to wait to pick up the shares cheaper in the placing. It could also leave bench-marked funds that currently have an underweight position even more exposed to a further rise in the share price, in our view.
The fact that such heavyweight investors are queueing up for a piece of the action, suggests to us that they remain confident of future capital appreciation and income generation from the shares.
It is possible that an announcement of a sale could coincide with the release of the company's interim results on 1 August, which we think will include an upbeat outlook statement given the banks recently strengthened capital position and the apparently improving outlook for the UK economy, housing market and consumer (as judged by recent surveys and data releases), to which the company's financial prospects are closely tied.
The reports also helped the other state-owned bank, Royal Bank of Scotland, which has risen 8.1p to 284.8p. Meanwhile HSBC is 7.8p higher at 720.1p after Friday's news it was exiting its South Korean business. Shore Capital again:
While the withdrawal from such a large and important Asian economy may raise some eyebrows, we note that HSBC had already indicated that South Korea is not on its list of priority growth markets. This planned exit does not...have any impact on our investment opinion, which remains a positive one given the ongoing self help story that is being rolled out in the company and the attractive valuation, notably a 2014 dividend yield of 5.2%.
Talk of the UK government accepting the Tyrie report on banking reforms has done little for the sector.
Overall the FTSE 100 is up 65.14 points at 6440.66, as Greece reaches a deal with its Troika lenders and the Eurogroup gathers for its latest meeting.
Defensive stocks, in demand on a risk-free day, are heading lower as investors regain their nerve. So Severn Trent is down 4p at £17.31 and supermarkets are lower, with J Sainsbury off 0.9p at 371.6p.
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