Kudos and a $500 mln pot: banks fight for Lloyds, RBS deals

Fri Jul 5, 2013 11:03am EDT

* All top firms keen for piece of Lloyds, RBS share sell-off

* Must pitch by Monday to handle bail-out bank stake sales

* Fees likely to be skinny, maybe below 0.5 pct -bankers

* Pot may still exceed 300 mln stg over several years

* Prospect of follow-on work is big attraction

By Steve Slater and Matt Scuffham

LONDON, July 5 (Reuters) - More than a dozen top banks are finalising plans to run a 20 billion pound ($30 billion) share sale in part-nationalised Lloyds, one of the most prestigious British deals in recent years, but with fees cut to the bone.

Banks need to pitch by Monday to handle the sale of the government's 39 percent shareholding in Lloyds and - later - its 81 percent of Royal Bank of Scotland (RBS), UK Financial Investments (UKFI), which manages the government's shares, says.

UKFI will pick a shortlist, possibly about eight banks, which it can turn to at short notice, and a Lloyds sale may start this year with as much as 5 billion pounds worth its holding up for sale, industry and political sources say.

Bankers said all the big names from Wall Street and the City of London will be bidding, even though fees for government work are far less lucrative than for private firms.

"There's more honour at stake than there is money," said one senior investment banker involved in the process.

Bidding for the work will bring some of the City's big names up against each other: UBS's Simon Lyons and David Soanes, both of whom are advising Co-op Bank on its 1.5 billion pound ($2.3 billion)rescue plan, Credit Suisse's Ewen Stevenson and Sebastian Grigg, a contemporary at Oxford University of Osborne and British Prime Minister David Cameron, Barclays's Jim Renwick - who advised RBS on its bailout, and Rupert Hume-Kendall, one of the most prolific dealmakers at Bank of America Merrill Lynch, who last year advised on a Reckitt Benckiser share sale.

Heavyweights such as HSBC CEO Stuart Gulliver, Deutsche Bank's Anshu Jain and UBS's Sergio Ermotti may also enter the fray.

Fees could be below the usual 0.5 percent for a government sale and maybe as low as 0.1-0.2 percent if the government opts to give the banks advisory roles rather than the more risky taking on of blocks of stock to sell on, bankers said.

Finance minister George Osborne said in June that the government was ready to start selling its Lloyds shares, which are trading comfortably above the government's breakeven price, having hit a two-year high in June.

The Treasury has not yet said how it will structure the sales. It may ask a syndicate of banks to buy a block of shares and sell them in a traditional accelerated bookbuild process, which requires the banks to take on more risk.

Alternatively, it may ask banks to play more of a marketing role and run a roadshow to assess demand for shares, without taking any risk. That would enable the Treasury to pay lower fees and vary the amount it sells depending on demand. The U.S. government used this method to exit insurer AIG, on which it made a $22.7 billion profit after paying underwriting fees of 0.5 percent, far below usual non-state fees of 2-3 percent.

The scale of the Lloyds sale means banks involved should still land tens of millions of pounds: banks would earn 25 million pounds if they charged 0.5 percent on the sale of 5 billion pounds of shares. That is potentially 325 million pounds ($490 million) in total fees - albeit maybe over a decade.

But the real prize is the prospect of follow-on work for a job well done. Britain pumped 20 billion pounds into Lloyds and 45 billion into RBS, and said it aims to get its money back.

Banks have been asked to pitch for four roles: bookrunner, co-lead manager, capital markets adviser, and financial and/or strategic adviser. All the major banks are likely to tender, including U.S. firms JPMorgan, Bank of America Merrill Lynch, Morgan Stanley, Citigroup and Goldman Sachs.

At least as many Europeans are expected to pitch, including Barclays, Deutsche Bank, UBS, Credit Suisse, HSBC and Rothschild.

All banks declined to comment.

UBS, Credit Suisse, Deutsche Bank and JPMorgan worked closely with the Treasury during the 2008 bailout of the banks. UBS and Bank of America are joint brokers to Lloyds and UBS and Morgan Stanley are brokers to RBS.

The Treasury has asked banks to submit fee structures in six blocks: accelerated bookbuilds above and below 3 billion pounds, full market offers - which could include share sales to retail investors - of above and below 5 billion pounds and equity-linked structured product sales above and below 2 billion.

It is rare any transaction exceeds 8 billion pounds, so the Lloyds stake is likely to be sold in at least four tranches and RBS could take more than 10.

One of the most anticipated share sales of recent years has shown the risk of handling a hot deal, however. When Facebook's $16 billion IPO last year flopped, the blame was pinned on the Nasdaq exchange and lead underwriter Morgan Stanley.

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