TSB Lures Retail Investors With Bonus Shares
Britain's seventh-biggest high street bank will attempt to lure investors with an offer of free shares when it unveils plans for a £1.5bn flotation on Tuesday.
Sky News has learnt that TSB will tell retail shareholders who hold onto their stock for at least a year that they will receive one bonus share for every 20 they acquire in one of the City's biggest stock market listings so far this year.
The share sale is being organised by Lloyds Banking Group, the state-backed lender, which has been trying to offload the 630-strong branch network for more than three years.
Originally ordered to sell the business by Brussels following its taxpayer bailout in 2009, Lloyds planned to dispose of it to the Co-operative Group but was forced to abandon the deal following the emergence of a £1.5bn black hole on the balance sheet of the mutual's banking arm.
TSB's bonus share offer will mirror an identical one from Saga, the over-50s insurance and travel company, which announced last week that it would sell shares at the bottom of a proposed price range amid weaker-than-expected demand.
The bank wants to drum up significant demand from ordinary investors, with between 15% and 30% of the shares expected to be disposed of through a retail offer.
Lloyds is expected to announce the IPO in a statement on Tuesday morning, according to insiders.
The bank will initially sell only 25% of TSB's shares but must offload the rest by the end of next year to comply with European Commission requirements.
TSB was relaunched last autumn as a standalone high street branch network.
Its management, led by chief executive Paul Pester, has attempted to distinguish itself from larger rivals by running an advertising campaign promoting its absence from investment banking and the autonomy afforded to local branch managers.
Selling shares at an attractive valuation for Lloyds will not be straightforward, however.
Sky News can also reveal that TSB's intention to float announcement is expected to say that the bank may not be in a position to begin dividend payments until 2017, later than most analysts and investors had anticipated.
The TSB listing will also come at a time when City institutions' enthusiasm for new issues has shown signs of fatigue, with Fat Face, a fashion retailer, aborting its flotation last week.
TSB executives believe, though, that investors will view the high capital buffer on its balance sheet as a signal that there could be substantial returns to them over the medium term, potentially increasing the price they are willing to pay at the IPO.
They also expect there to be strong appetite from institutions which are keen to buy into a play on the UK economy and rising interest rates but without legacy issues such as insurance mis-selling, which continue to haunt major banks.
The bank has strengthened its board in recent days, appointing a handful of new non-executive directors, including Philip Augar, the financial commentator, and Stuart Sinclair, a former boss of Tesco Personal Finance.
Lloyds and TSB both declined to comment.