LONDON – The Lloyds Banking Group said on Tuesday that it would proceed with an initial public offering of its TSB Banking Group unit on the London Stock Exchange next month.
Lloyds, which is partly owned by the British government, must divest itself of the TSB network of 631 branches by the end of 2015 under the terms of its government bailout during the financial crisis.
The bank intends to initially sell about 25 percent of TSB’s shares, including an incentive for retail investors to buy stock, and will sell its remaining stake in the unit by the end of 2015.
The forced sale of TSB has not been without its challenges. Lloyds has spent roughly 1.6 billion pounds, or about $2.7 billion, to carve out the business.
European competition authorities, which required Lloyds to divest itself of the branch network as part of its £17 billion bailout, see the breakup as a way to increase consumer choice in the British banking sector.
Analysts have recently questioned whether Lloyds would be able to achieve a valuation equal to TSB’s perceived book value, given what appears to be a recent cooling in the London I.P.O. market.
Fat Face, a clothing retailer, withdrew its plans for an I.P.O. last week, while Saga – a seller of insurance, travel packages and other products aimed at people over 50 – priced its offering at the bottom end of its expected range.
TSB, as a stand-alone entity, would have a book value of roughly £1.5 billion, and that would probably be the “maximum” valuation it would receive in a public offering, according to a research note on Tuesday by Shailesh Raikundlia, an analyst at Espirito Santo Investment Bank. The business would have £23.3 billion of deposits and £23 billion in assets.
Lloyds has not announced the price range for the shares or how much it expects to raise.
Despite owning about 25 percent of Lloyds shares, the British government is not expected to receive any of the proceeds from the I.P.O. Instead, it will continue to recoup its bailout funds through the sale of its Lloyds holdings. The government has reduced its stake from about 39 percent, and has done so at a profit.
Lloyds reintroduced the TSB brand last year as part of its effort to spin out the unit.
António Horta-Osório, the Lloyds chief executive, called the I.P.O. “an important further step for the group as we act to meet our commitments to the European Commission.” He said the unit had “a strong balance sheet and significant economic protection against legacy issues.”
Lloyds is expected to shoulder liability for any legacy issues related to TSB’s business, including the improper sale of payment protection insurance, a product that has cost British lenders billions of pounds in compensation to customers.
TSB has about 4.5 million retail customers and is the seventh-largest retail bank in Britain.
As an incentive for retail investors, Lloyds is offering them the opportunity to receive one free share for every 20 they purchase in the offering, up to £2,000.
Will Samuel, a former vice chairman of European investment banking at Citigroup and a former vice chairman of Lazard, will serve as TSB’s chairman. He most recently served as a senior adviser to the Prudential Regulation Authority of Britain.
“Today is a significant milestone on our journey to create a major new competitive force in U.K. banking,” Paul Pester, the TSB chief executive, said in a statement. “Everyone involved in the creation of TSB has worked tirelessly to create something truly unique and to create a bank that brings more consumer choice and competition to the market.”