(Adds comments from sources, background)
* Lloyds had first mooted a sale of up to 50 pct
* Lloyds must sell TSB by end of 2015
* Sale expected to be in 3 tranches - sources
* JP Morgan, Citi leading IPO
By Matt Scuffham and Freya Berry
LONDON, May 22 Lloyds Banking Group
will next week launch the sale of about 25 percent of its TSB
business via a stock market flotation with the pricing expected
to be below book value, banking industry sources told Reuters.
The amount sold is likely to be at the bottom end of earlier
guidance, they said, reflecting a cooling of investor interest
in UK company flotations in recent weeks following a flurry of
activity earlier in 2014.
TSB's Chief Executive Paul Pester said in November Lloyds
could initially sell between 30 and 50 percent of the business,
which has 631 branches and 4.5 million customers, making it
Britain's seventh-biggest lender. However, Lloyds Finance
Director George Culmer said in May the bank would sell a minimum
of 25 percent.
Banking industry sources said the IPO, which will take place
before the end of June, is expected to value TSB below its book
value of 1.5 billion pounds, meaning Lloyds will make a loss on
"They're being a bit more realistic on valuation. There's
just not appetite in the market," one of the sources said.
"There's just a rash of consumer-exposed IPOs, and TSB is very
Clothing chain Fat Face pulled its planned London listing on
Thursday, citing market conditions as the main factor in its
decision. Holidays-to-insurance firm Saga priced its IPO at the
bottom of its original range.
"TSB a month ago would have been the hottest deal around,"
one banker told Reuters.
Lloyds must sell all of TSB by the end of 2015 as a
condition of its 20.5 billion pound state bailout during the
2008 financial crisis. It is expected to sell it in three stages
and needs to sell the first tranche by the end of the second
quarter to be on track to meet the deadline, the sources said.
JP Morgan and Citigroup are leading the IPO
process. UBS is joint bookrunner.
Lloyds wants to sell in June because it may not be able to
in the following months. It will enter a close period in the
run-up to its results on July 31. August is traditionally a
difficult time to conduct share sales because of the holiday
season and a sale in September might be complicated by an
independence vote in Scotland, where Lloyds is registered.
Pester began sounding out potential investors in Britain and
the United States in January, hoping they would be attracted to
TSB because it had no legacy issues relating to past misconduct
and would benefit from Britain's economic recovery.
Lloyds is currently trading at 1.3 times its book value
while HSBC is trading at 1.1 times. Barclays
and Royal Bank of Scotland are both trading below book
value, with the legacy of past misconduct continuing to weigh on
Lawmakers and regulators are keen to see new banks emerge to
break the dominance of Britain's biggest five banks, which
control more than three quarters of the personal current account
market and TSB is seen as a viable challenger.
Lloyds had originally planned to sell the branches to the
Co-operative Bank but that fell through last year before a 1.5
billion pound funding gap at the Co-op was exposed.
Lloyds then reverted to a stock exchange listing for the
branches, which it re-named TSB, reviving a 200-year-old brand
last seen on the British high street in 1995.
The European Commission approved the IPO last month and
agreed to extend the original deadline for the sale of November
2013. Competition Commissioner Joaquin Almunia said establishing
TSB as a standalone bank would increase competition in UK retail
The government has begun to sell its holding in Lloyds and
wants to sell its remaining 25 percent stake before the next
election in 2015. Lloyds managers see the sale of TSB as helping
it return to being a "normal" bank.
Lloyds and TSB declined to comment. Citi declined to
comment. JP Morgan and UBS were not immediately available for
($1 = 0.5925 British Pounds)
(Editing by Tom Pfeiffer)