* Decision makes full sale before election unlikely
* Clarity over dividend seen as key to retail sale
* Treasury says decisions determined by market conditions
* Shares have fallen 15 percent since January
(Adds Treasury comment, further details)
By Matt Scuffham
LONDON, Aug 13 Britain has abandoned plans to
sell shares in Lloyds Banking Group to private retail
investors next month because of a decline in the bank's share
price, banking industry and political sources told Reuters.
Finance Minister George Osborne had been keen to sell some
of the government's remaining 25 percent stake to private
investors to let taxpayers share some of the benefit from the
bank's return to profit.
But a 15 percent decline in the bank's share price since the
start of the year has persuaded Osborne to ditch the idea, the
The decision significantly reduces the government's chances
of selling all its shares, which it sees as a milestone in
Britain's recovery from the financial crisis, before the next
election in May 2015.
Osborne acted after receiving advice from UK Financial
Investments, the body that manages the government's stakes in
bailed out banks, the sources said.
UKFI believes that a sale to private retail investors will
be easier when the market has more clarity over Lloyds' future
dividend prospects. Lloyds has said it will ask Britain's
financial regulator for permission to resume dividend payments
in the second half of the year.
Private investors traditionally like dividend-paying stocks
whereas institutions may be prepared to take a longer-term view.
Sources said the government and UKFI were also influenced by
uncertainty created by the Scottish independence vote in
September, a forthcoming strategy review by the bank and stress
tests being undertaking by regulators later in the year.
A Treasury spokesman said any decisions on share sales would
"be determined by value for money and market conditions".
"We want to maximize support for the British economy, get
the best value for money for the taxpayer and return the
state-owned banks to private ownership," he said.
UKFI has already sold a 13.5 percent stake in the bank,
raising 7.4 billion pounds, in two separate sales to financial
institutions such as pension funds and insurers in September and
However, Lloyds shares have fallen about 15 percent from a
high of 86.3 pence in mid-January and closed on Wednesday at
73.7 pence. That is below the 75 pence and 75.5 pence level at
which the first two share sales were priced and which sources
say are a floor below which UKFI will not sell.
The current price is only marginally above the 73.6 pence
average price at which the government bought its shares.
Shares in Lloyds had nearly doubled in the 9 months prior to
the January high but have drifted lower since, in part because
anticipation among some investors that the bank would begin
paying dividends again this year proved over-optimistic.
A sale to retail investors will have had to be priced at a
deeper discount than one to institutions only to entice private
investors to buy a stock which they could already purchase on
the open market.
The first two Lloyds sales were sold at discounts of 3
percent and 4.6 percent to the market price.
($1 = 0.5990 British Pounds)
(Reporting by Matt Scuffham; editing by David Clarke)