Should You Invest In The TSB Flotation?

The full reprivatisation of Lloyds Banking Group (LSE: LLOY) (NYSE: LYG.US) has been on the cards for some time, with the government selling off the second tranche of the shares acquired as part of the bail-out.

The bank has also split itself back in the its previous brands, of Lloyds and TSB, with the intention to float TSB as an independent company — much to the confusion of a lot of customers at my local branch of Lloyds, er, I mean TSB, who suddenly learned the nearest branch they could do all their business at was a mile away.

TSB float

TSBAnd that initial public offering is expected to happen next month, with The Telegraph reporting a commencement date of 19 May, and the shares trading by the end of the month.

The question for us, as private investors, is easy — should we try to buy some? The answer is not at all obvious.

On the one hand, Lloyds (and, of course, the government) will be wanting this sale to be seen as a big success — we’ve already seen the giveaway pricing of the Royal Mail flotation. So surely they’ll price the offering attractively, won’t they?

Under pressure

The minor stock market slide we’ve seen recently will also put downwards pressure on the flotation price.

LLOYIn fact, since the start of January we’ve seen the Lloyds share price going into decline — from a 12-month peak of 86.8p, the shares have shed 15% of their value to today’s 73.4p.

Other optimism comes from Lloyds’ progress on the liquidity front. For the year ended December 2013, the bank recorded a Core Tier 1 ratio of 14%, which was up from 12% a year previously and twice the 7% demanded by current regulatory requirements — and that’s quite an improvement from the mere 5.6% it could muster in the dark days of 2008.

Bargain priced?

Against that, The Telegraph reports that some investors are seeing early proposed valuations of TSB as being somewhat optimistic, suggesting that the overall value of the bank might have to be lowered to less than its book value of £1.5bn. And that could end with a smaller chunk of TSB being floated than the hoped-for 50%.

The decision whether to buy will, of course, depend on the details of the offering — we’ll need to see the value and quality of the assets of an independent TSB together with its liquidity status. And we’ll know the full details when the prospectus is published.


For now, with the keenness for this offering to go well, I think the odds of an attractive flotation price are on the side of investors, and at the moment I’m cautiously optimistic.

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Alan does not own shares in Lloyds Banking Group.