Lloyds Banking Group will boost its closely watched Tier 1 capital ratio by another 0.16 percentage points with the sale of a 15% stake in wealth manager St James's Place.
The sale, disclosed late on Wednesday, took well-timed advantage of the soaring share price of St James's Place, which peaked at 640p on the day having doubled in 12 months and risen 50% this year.
The placing of Lloyds' 77 million shares at a 9% discount price of 580p also avoided yesterday's correction in the market, which saw St James's Place fall by 62p to 578p, just below the price achieved by Lloyds 24 hours earlier.
Lloyds shares were also under pressure, but remained just above the critical 61p level at which the government bought its 39% stake.
The bank, which this week concluded discussions with the Prudential Regulation Authority over capital strengthening, inherited a 57% stake in St James's Place in the rescue of HBOS.
In March, following the announcement by the Bank of England's Financial Policy Committee that UK banks would need to raise £25 billion to strengthen their balance sheets, Lloyds offloaded 20% of the St James's Place stake in a placing of 101 million shares at 510p.
That added £600m to the bank's capital, and importantly bolstered the core Tier 1 capital ratio, on the new "pro forma fully loaded CRD IV" basis, by 0.15 percentage points.
The higher price of the latest sale means that although the stake is 25% smaller, the deal will add a further £500m to capital and beef up the core Tier 1 ratio by another 0.16 percentage points.
Lloyds had undertaken in March not to make any further disposal of its stake within 12 months, but adviser Merrill Lynch waived the requirement.
It has now put in place a new lock-up agreement, which means Lloyds cannot touch the rest of its stake for another 12 months – however, a further clause says that agreement could also be waived, though not for at least six months.
Lloyds said its tier 1 capital ratio would now be 12.3%, though its targets under the new, tougher CRD IV regime are 9% in 2013 and 10% by the end of next year.
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