Lloyds Banking Group to offer cut-price shares

In order to repay the preference shares owned by the Treasury Lloyds Banking Group is trying to raise extra cash by offering a discounted share scheme to existing share holders. A lot of investors in the over 50s bracket could soon be receiving this offer.

There are about 2.8 million Lloyds shareholders, so lots of people will have to make up their mind as to whether this offer is right for them. It includes erstwhile HBOS shareholders who now hold Lloyds shares.

The offer entitles shareholders to apply for 0.6213 new ordinary shares for each existing share they hold, at a price of 38.43p. As at Monday 18 May Lloyds shares were worth 98p on the open market. According to the group, the offer will mean that the average shareholder (with 550 shares) would be offered 340 new shares for around £130.

The shares of anyone not taking up the offer will be offered for sale on the open market, and any profits will be distributed on a pro-rata basis to shareholders who did not partake in the offer.

Although the actual share offer will not reduce the Government’s stake in Lloyds, the bank is taking the action to strengthen its balance sheet, and allow it to redeem the preference shares and the dividends that go with them. In fact, if the offer is taken up successfully, then the bank will become one of the most strongly capitalised banks in the world.

With the preference shares repaid, the bank would probably be able to start paying dividends to ordinary shareholders in 2010, although there is no chance of a dividend this year.

Shareholders have to vote yes to the plan at the Group’s AGM on 5 June in Glasgow, before the placing and offer is then made to those same shareholders.

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