By Sinead Cruise and Kylie MacLellan
LONDON, June 30 Just as Britain's government is
trying to clear a path for the politically sensitive sale of its
39 percent stake in Lloyds bank, resentment is brewing among the
investors who would be expected to buy the stock.
Some fund managers say they are wary of buying stock
released in staggered sales until banks and regulators clarify
the rules on how quickly company owners are allowed to sell more
shares - a dispute that could hurt large stock offers such as
They say they have been burned before by banks allowing
owners to bypass lock-up agreements, which are meant to prevent
too much stock hitting the market too fast and pushing the share
Any boycott could complicate the privatisation of Lloyds
Banking Group, one of the government's most
high-profile strategies to show it is improving Britain's
national finances and getting banks to lend more to businesses.
"Decisions to blacklist are on people's agenda," said one
fund manager at a UK investment house running around 80 billion
pounds in assets. "This goes right to the heart of whether we
have trust in the markets in which we operate."
This shareholder and the other investors who talked to
Reuters all declined to be named because of the sensitivity of
The debate was prompted by a deal in May, where Lloyds sold
15 percent of wealth manager St James's Place, just over
10 weeks after a previous sale, despite having agreed not to
reduce its stake further for at least a year.
The lock-up was waived by bookrunner Bank of America Merrill
Lynch. Lloyds and BoAML declined to comment.
Although lock-ups are waived relatively often, and investors
are warned that the timetable for additional share sales can
change, it usually happens closer to the expiry date than in the
St James's case.
A person familiar with the matter said the sale had the
backing of the Treasury and of UKFI, the organisation which
manages the government's stakes in banks, because Lloyds needed
to boost its capital, and the offer drew strong demand.
However, investors say they want clarity on the terms and
conditions under which such agreements can be waived.
The government has flagged it is ready to start offloading
shares in Lloyds and on Friday began the process of appointing
advisors for the sale, which is expected to take place
incrementally over many months.
Further down the line, the government will also look to sell
down its even larger stake - 81 percent - in Royal Bank of
"It is very important the authorities do what they can to
shore up investor confidence before the likes of Lloyds and RBS
come to market. They will be some of the biggest partial stake
sales seen for a long time," said a second UK investor at a fund
management firm running around 50 billion pounds ($76 billion)
The Association of British Insurers (ABI) has written to
regulator the Financial Conduct Authority (FCA) asking them to
look at the issue of lock-ups and their importance in
maintaining an orderly market, three people familiar with the
matter said. The ABI declined to comment.
Some investors are waiting for the outcome of the ABI's
discussions with regulators and bankers on whether Lloyds and
its advisers behaved appropriately before deciding whether to
A spokesman for the FCA said the regulator was aware of the
issue and was looking into whether this comes under its remit.
People working in equity capital markets say waiving a
lock-up is not a decision which is taken lightly, and is only
usually done when a stock price has performed strongly,
investors want more shares and the seller has a legitimate
reason for wanting to raise money.
"While exercising waivers does undermine the integrity of
any other lock-ups, generally such early sales are only likely
to happen when there is reasonable market demand, thus clearing
share overhangs when the market has the appetite," a third
investor said, echoing this sentiment.
St James's Place shares had risen 25.5 percent between the
first and second sales. The second sale was done at a 9.4
percent discount and after the sale the shares opened nearly 11
percent below the previous day's closing price.
"There is a requirement on companies to take all reasonable
care to make sure that any announcement they make to the market
is not misleading, false or deceptive and doesn't omit anything
that is likely to impact the significance of what they are
announcing," the first investor said.
"There is a real question here about whether this
contravenes the rules and the FCA needs to clarify this."