3 Things You Should Know About Lloyds Banking Group PLC’s TSB Flotation


Lloyds Banking Group (LSE: LLOY) (NYSE: LYG.US) has announced its intention to float 25% of its TSB business on the London Stock Exchange. TSB is being divested — as mandated by the European Commission — in order to provide more competition after Lloyds was bailed out by the taxpayer in 2008.

1. Price

LloydsShares in Lloyds rose by just shy of 1% to 77p during early trade this morning. TSB is expected to be priced at less than its estimated £1.5bn book value amid weak market conditions for IPOs.

Saga, the holiday and insurance group, was priced at the bottom end of expectations last week and, in what could be the IPO market’s death knell, closed unchanged at 185p at the end of trading on Friday.

2. Incentives

In order to drum up interest among ordinary investors the bank will give away bonus shares. TSB’s chief executive, Paul Pester, said he would like investors to “hold shares as we grow into our shoes”.

TSB will offer retail investors one free share for every 20 they buy and hold for 12 months. This deal extends to a maximum £2,000 stake.

3. Prospects

TSB was relaunched as a standalone brand in September and consists of 631 branches. The chief executive of Lloyds, António Horta-Osório, noted that TSB has “a strong balance sheet and significant economic protection against legacy issues.”

TSB and has a core Tier 1 capital ratio of 17% of its assets (the strongest of the major UK high street banks). A maiden dividend is expected to be paid in 2017.

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TSB's prospectus will be published in mid-June. There's no denying, though, that the IPO market has lost some of its steam. If you're looking for attractive investment opportunities elsewhere in the market, then why not check out The Motley Fool's Top Growth Stock For 2014.

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Mark does not own shares in any company mentioned.