The first sale of state-owned shares in Lloyds Banking Group resulted in a £230 million loss for taxpayers, even though investors paid more for their stake than the government did in 2009, according to an analysis by the National Audit Office.
The loss factored in about £350 million of funding costs incurred since the government raised the money to buy its stake in 2009.
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Stripping out those costs, taxpayers made a profit of just under £120 million on the £3.2 billion of shares that were sold in September, said the NAO.
The government sold the first tranche of its £20 billion stake in Lloyds to institutional investors for 75 points a share, a slight premium to the average 73.6 points it paid to bail out the bank in 2009.
In its examination of whether the sale was good value for taxpayers, the NAO concluded: "This first sale represented value for money . . . The shortfall of at least £230 million should be seen as part of the cost of securing the benefits of financial stability during the financial crisis, rather than any reflection on the sale process, which UKFI managed very effectively."
UK Financial Investments, the government body that manages stakes in Lloyds and Royal Bank of Scotland, structured the sale as an "accelerated book build" – investment banks marketed shares to institutional investors over a 24-48 hour period.
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The NAO said this method was faster and less risky than others options such as selling to retail investors.
It said a retail sale would have required up to six months of preparation, the publication of a prospectus and an announcement of the date of the sale. "This would have constrained UKFI's flexibility to conduct the sale when market conditions offered the best prospect of selling the shares at a fair price," it said.
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The NAO said the Lloyds shares were sold when they were close to a 12-month high. The 3.1 percent discount to the market price was less than the average 4.3 percent discount on other comparable share sales.
Lloyds shares are currently trading above the sale price, closing at 76 points on Tuesday.
The government is expected to sell more shares in the first half of 2014, and is likely to open that sale to retail investors.
Sajid Javid, financial secretary to the Treasury, said: "The proceeds from the sale have reduced the national debt by more than half a billion pounds, but as the NAO also rightly points out, the country has had to pay a high price for the extra debt it has taken on because of the financial crisis."