Lloyds remains calm among chaos

Markets have reacted positively to the news that Lloyds may soon be parting company with the government.

UK taxpayers hold 39% of Lloyds Banking Group, and the phraseology being used on Wednesday evening by the chancellor George ‘not Jeffrey’ Osbourne has led the markets to believe that this arrangement could be brought to a close before the end of the year.

In a sea of red yesterday Lloyds was one of the very few equities that managed to keep its head above the water-line, illustrating how well markets received the news. While it was essential for the government to intervene in 2009 to avoid a run on the Lloyds share price, its presence is now viewed as more of a hindrance. Politics and business do not always make the best of bedfellows, and it is obvious that traders and investors view a Lloyds unencumbered by the government’s direct guidance as a more attractive investment.

In his speech, the chancellor confirmed that a sell-off of the Lloyds position would only be undertaken if it resulted in value for the taxpayer. As the government net break-even level is 61.2p, and as of mid-morning shares are trading above this, that hurdle would seem to have been cleared. Of course, in placing such a large percentage of a company’s shares into the market, it is likely that they will need to be at a discount in order to gain support. With that likely to be the case a little more headroom is required.

One thing that is likely is that untangling itself from Lloyds will be considerably easier for the government than separating from Royal Bank of Scotland will be. 

Lloyds Banking Group plc chart

This information has been prepared by IG, a trading name of IG Markets Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. See full non-independent research disclaimer and quarterly summary.

Spread bets and CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 79% of retail investor accounts lose money when trading spread bets and CFDs with this provider. You should consider whether you understand how spread bets and CFDs work, and whether you can afford to take the high risk of losing your money. Spread bets and CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage.