By Chad Bray
Nearly nine years after a government bailout during the financial crisis, the Lloyds Banking Group is fully private again. Lloyds—one of Britain’s four largest lenders—said recently that it had returned to private ownership after the British government sold its final stake.
The sale is a major milestone for Lloyds and comes five months after the lender made a big bet on the British economy, agreeing to buy Bank of America’s British credit card business for about $2.4 billion.
The British government owned 43% of Lloyds after it injected 20.3 billion pounds, or $26.2 billion at current exchange rates, into the lender. Including 400 million pounds in dividends, taxpayers recouped 21.2 billion pounds, the bank said.
“The government has sold its last shares in Lloyds Banking Group, receiving more money than was originally invested,” António Horta-Osório, Lloyds’ chief executive, said in a news release. “Six years ago, we inherited a business that was in a very fragile financial condition. Thanks to the hard work of everyone at Lloyds, we’ve turned the group around. But the job is not done.”
The British government confirmed that it was no longer a shareholder in the bank.
Lloyds shares were up about 2.5% after the announcement.
The bank was forced to take its bailout from the government in 2008 after a poorly timed acquisition of the mortgage lender HBOS, the operator of Halifax and Bank of Scotland, as the financial crisis hit.
The bank found itself saddled at the time with billions of pounds in bad loans, many from the HBOS acquisition, as the economic environment weakened.
When Horta-Osório joined Lloyds from Banco Santander in 2011, it had returned to profitability, but was still performing below expectations.
Under his leadership, Lloyds has aggressively cut costs, eliminated thousands of jobs, shrunk its ambitions outside Britain and sold off a variety of businesses. Like many of its peers, it has also bolstered its capital to shore up its balance sheet.
In 2014, it spun out TSB Banking Group, a move required by European regulators as a condition of the bailout.
In 2015, Lloyds began paying a dividend to investors for the first time since the crisis.
While the bank’s financial health has improved, Lloyds has still faced several hurdles related to its past conduct.
It was one of the biggest providers of so-called payment protection insurance, a contentious product that has cost the banking industry billions of pounds in customer redress.
The bank has set aside more than 17 billion pounds to compensate people who were improperly sold the insurance, and it was fined 117 million pounds in June 2015 for its handling of customer complaints related to the product. Horta-Osório has called payment protection insurance the lender’s biggest “legacy issue.”
But a deadline of August 2019 for making new complaints may allow Lloyds and the rest of the British banking industry to finally move past that scandal.
Lloyds has also faced pressure in recent months over a bribery scandal stemming from a division of HBOS in Reading, England, that focused on helping troubled small businesses. Six people, including two former HBOS employees, have been jailed in the matter.
Prosecutors said that bribes, including designer watches, luxury travel and sex parties, were paid in exchange for referrals of troubled HBOS small business clients to a consultancy firm, with many of those companies ultimately going bankrupt.
After the sentencing of six people earlier this year, Lloyds said it would conduct an independent review and compensate business owners where appropriate. The bank has set aside 100 million pounds to cover the compensation.
Another question that is lingering for Lloyds is the ultimate impact of Britain’s vote last year to leave the European Union.
Lloyds officials have said that they do no expect a major impact on the bank’s business, but concerns remain over the potential effects of any economic slowdown after Britain leaves the 28-nation bloc. That said, the British economy has been more resilient since the referendum in June than many had expected.
© 2017 The New York Times
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