On the 12th of March Lloyds Banking Group PLC informed that it has decided to sell 20 percent of its stake in the wealth management firm St. James Place PLC in order to uphold its capital reserves. The bank is expected to reap a profit of approximately £520 million from the stake sale.
Lloyds to Reap Profit from Stake Sale
Lloyds Banking Group PLC, Britain’s largest mortgage lender, decided to trim its shares in the wealth management firm St. James Place PLC in an effort to back capital needs. According to a stock market announcement made on the 12th of March, Lloyds Banking Group stated that the bank was planning to reduce its stake in St. James Place by selling 101.7 million shares at £5.1 per share. With the 20 percent sale of shares in St. James Place, the bank is expected to make a profit of nearly £520 million. In addition, Lloyds Banking Group decided to retain a 37 percent stake of St. James Place issued share capital in order to gain large chunks of profits from the wealth management firm.
The profit earned from the sale of the 20 percent stake in St. James Place will enable Lloyds Banking Group to convince the UK regulators that the bank contains enough capital to support lending activities and offer considerable dividend payments to its shareholders. Moreover, Lloyds Banking Group will continue to represent in St. James Place’s board for major decisions which require approval from stakeholders. Lloyds Banking Group stated that the anticipated profit from the stake sale would simplify its business after a state bailout during the 2008 global financial crisis drained earnings. In addition, the finance generated from the stake sale in St. James Place will be used purely for “general corporate purposes”.
Stake Sale to Boost Lloyds Capital Ratio
In November 2012 Lloyds Banking Group bailed out as an undercapitalized bank unfit to contain potential capital in order to support unexpected losses. Therefore Lloyds Banking Group is increasing its financial base in an effort to reduce the balance sheet balance to enhance greater capital gains. Moreover, the 20 percent stake sale in St. James Place is expected to increase the capital ratio of the bank. The core capital ratio of Lloyds Banking Group is widely expected to increase by 20 basis points or approximately £600 million. Lloyds Banking Group expects sales to advance by £500 million in 2013. In addition, the capital ratio of Lloyds Banking Group was 12 percent for the year ended December 2012.
St. James Place is one of the largest wealth management firms in the UK catering to 140,000 customers and generating over £35 billion revenues annually. As for the pre-tax profit of St. James Place, it was roughly £76 million for the year 2012. However, Lloyds Banking Group suffered an annual loss of nearly £1.42 billion for the year ended December 2012 as it was forced to set aside nearly £3.6 billion against compensation payouts in the payment protection insurance scandal. Moreover, Lloyds Banking Group has underlined that it does not intend to make any further disposals in 2013. The stake sale in St. James Place is expected to be completed on the 15th of March.