Lloyds boosts capital position ahead of FSA review

Lloyds has sold part of its stake in St. James Place for £400m in an effort to strengthen its capital position. Lloyds sold 20% stake in St.James Place, which is a wealth management firm, netting 510p a share for 101.7 million shares. The sale will bolster Lloyds’ Tier 1 capital to approximately £600m and improve its core capital ratio by around 20 basis points. Lloyds will retain a 37% stake in St James’s Place following the placing of shares on the stock market, which will be completed on Friday, March 15.

A few weeks ago Co-operative Bank emerged to have been suffering from £1bn capital crunch jeopardising Project Verde deal with Lloyds. But Lloyds is not taking such risks and hence has resorted to selling its stake in St James Place to secure its capital position. Lloyds has also resolved not to sell any more shares for at least a year following the placing. The announcement lifted speculation that Lloyds has been trying to rid itself of its entire holding – which has been subject of stock market rumour for many months.

The £600m capital boost comes because Lloyds will revalue the remaining part of the stake. The capital boost comes at a time when the Financial Services Authority is reviewing the capital cushions of all the major banks. The regulator is expected to provide a formal update on the health of the banking industry later this month through the Bank of England’s financial policy committee.

St James’s Place is already in the FTSE 250 index where its shares have been rallying in recent months from just under 400p in December to about 530p at Monday’s close. As a result of the placing, the shares were the biggest faller in the FTSE 250, falling 3% to 520p, while Lloyds was one of the biggest risers in the FTSE 100, up nearly 1% at 50p. Lloyds is also preparing for a partial privatisation after the bonus of its chief executive, António Horta-Osório, was linked to the shares being sold off at 61p or higher.