* Up to a quarter of remaining stake could be sold - sources
* Dividend blow may put retail offer on backburner - sources
* Government wants to sell remaining shares by 2015 election
* Scottish independence vote may disrupt timing - sources
By Matt Scuffham
LONDON, Feb 17 Britain wants to sell the vast
majority of its next Lloyds share offering in March or
April to institutions and may offer a small number to retail
investors despite uncertainty over its dividend, bank and
political sources said.
Retail investors favour stocks that pay dividends because of
the near-term income they provide, whereas institutional
investors are usually prepared to take a longer view.
Lloyds was rescued through a 20.5 billion pound ($34
billion) government bailout during the 2008 financial crisis,
leaving taxpayers with a 39-percent stake.
Having sold a 6 percent stake last September, the government
wants to sell the remainder before the next election in 2015 and
Finance Minister George Osborne has said some shares will be
offered to the public "when the time is right".
The Treasury and advisory group UK Financial Investments
(UKFI) are discussing whether to include a retail component in
the next sale but some officials believe they should wait until
Lloyds dividend prospects are clearer. Its failure to pay a 2013
dividend disappointed some analysts and investors.
The bank said last week it would approach Britain's
financial regulator in the second half of 2014 about starting to
pay dividends again at a modest level, meaning investors would
not receive a payout for another 12 months.
UKFI, which manages the government's stake, will be free to
sell more shares once the bank's annual report has been
published in early March.
Banking and political sources say the most likely outcome is
a sale to institutions such as pension funds and insurers
followed by a larger offering including retail investors later
in the year or in early 2015. The Treasury and UKFI have taken
no final decision on various options under consideration.
One of the sources told Reuters the government could look to
sell up to a quarter of its remaining shares in the sale to
institutions, potentially raising more than 4.5 billion pounds,
compared with the 3.2 billion raised in the first sale.
Other complications may arise if Scotland votes on Sept. 18
to become independent from England. Lloyds, owner of Bank of
Scotland, is registered in Edinburgh and a "yes" vote would have
significant implications for the bank, including possibly moving
its registered headquarters to London.
In the weeks leading up to that vote, the government may not
be able to sell any shares because of uncertainty over the
bank's future, the sources said.
That potentially rules out selling a large chunk in
September, traditionally a ripe spot for share sales with
investors back at their desks after the summer holidays and
ahead of the closed period before third-quarter results.
However the sale is structured it will need to be handled
with extra care. In December, Britain's public spending watchdog
said taxpayers lost at least 230 million pounds on the first
sale, contradicting Osborne's assertion at the time that the
shares had been sold at a profit.
Though the shares were sold at 75 pence - above the price at
which they were bought - the National Audit Office calculated
that they would need to have been sold at 80 pence for the
government to break even, taking account of the cost of
borrowing the money to buy the shares.
Shares in Lloyds closed 1.6 percent higher at 81.8 pence on
Monday. Any sale would need to be pitched at a discount to the
Lloyds, UKFI and the Treasury declined to comment.