* Bank to sell more than expected 25 pct -sources
* IPO priced at 260 pence per share vs 220-290 range
* Values TSB at 1.3 bln stg, 0.8 times book value
* At least a quarter of shares sold to retail investors
* Sale at least 10 times oversubscribed -sources
(Adds IPO price, size of stake to be sold)
By Matt Scuffham
LONDON, June 19 Britain's Lloyds Banking Group
has increased the number of TSB shares it is selling
following strong investor demand for the stock market listing,
sources familiar with the matter said on Thursday.
Lloyds, which was ordered to divest 631 branches by European
regulators, will sell a 38.5 percent stake in the rebranded TSB
business on Friday, the sources said. It had originally planned
to begin the disposal by selling only a quarter.
The shares will be sold at 260 pence each, towards the upper
end of the 220-290 pence range the bank had set. That values the
business at 1.3 billion pounds ($2.2 billion), about 0.8 times
its valuation on Lloyds' books.
The initial public offering (IPO) has attracted interest
from investors in Britain, the United States and Asia, the
sources said, including both private retail investors and
financial institutions such as pension funds and insurers.
Sources familiar with the matter said demand for the shares
outstripped the amount on offer by more than 10 times. At least
a quarter of the shares will be sold to retail investors, the
The valuation is lower than the 1.3 times net asset value at
which Lloyds itself trades, but it is ahead of the 0.7 multiple
of rivals Barclays and Royal Bank of Scotland,
based on their current share prices.
Lloyds, which is 25 percent owned by the government, was
told by European competition regulators to sell the branches as
a condition for approval of state aid received by the banking
group during the 2008 financial crisis.
Lawmakers are keen for new challengers to emerge to break
the dominance of Britain's "Big Four" lenders, including
Barclays, RBS and HSBC.
The re-emergence of TSB after it disappeared from Britain's
high streets in the 1990s is expected to create a credible
TSB has a head start over other new players, with 4.5
million customers and 6 percent of Britain's bank branches. But
it has only a 4.2 percent share of the personal current account
market and has said it will take four to five years to hit its 6
Lloyds is expected to sell the shares in three stages,
employing a similar strategy to that of RBS when it sold its
Direct Line insurance business, with each tranche priced higher
than the previous sale.
The European Commission's original sale deadline of November
2013 had to be extended to the end of 2015 after the collapse of
a planned sale to the Co-operative Bank, which sparked a
parliamentary inquiry and inflated the cost of the sale process
to 1.6 billion pounds.
The success of the listing comes after investor interest in
British flotations had cooled in recent weeks. Clothing chain
Fat Face pulled its planned listing last month, while shares in
insurance-to-holidays firm Saga have fallen below
their issue price.
Industry sources say that a successful sale will depend
largely on the performance of the stock in its first days of
trading. Lloyds and its advisers will be looking for a strong
showing to smooth the path for future share sales.
Though the IPO has attracted investors looking to tap into
Britain's economic recovery through a bank that is untainted by
the scandals that have dogged the sector since the financial
crisis, banking industry sources said that some had needed
convincing after TSB indicated that initiatives to win new
customers would rule out dividend payments until 2017.
Demand received a timely boost from comments by Bank of
England Governor Mark Carney last week, who indicated that UK
interest rates could rise sooner than financial markets expect,
potentially boosting TSB's profitability.
TSB could be the first of a number of British banks to list
on the London Stock Exchange over the next two years. Banking
sources say that fledgling lender Aldermore is considering a
listing this year and that Virgin Money and Santander UK could
float next year, followed by Williams & Glyn, which is being
spun out of RBS, in 2016.
The government also plans to sell its remaining 25 percent
stake in Lloyds before the next election in May 2015.
(Editing by David Goodman and Jane Baird)