Fund firms' boycott threat could hurt Lloyds stock sale

Sun Jun 30, 2013 4:27am EDT
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By Sinead Cruise and Kylie MacLellan

LONDON (Reuters) - Just as Britain's government is trying to clear a path for the politically sensitive sale of its 39 percent stake in Lloyds bank, resentment is brewing among the investors who would be expected to buy the stock.

Some fund managers say they are wary of buying stock released in staggered sales until banks and regulators clarify the rules on how quickly company owners are allowed to sell more shares - a dispute that could hurt large stock offers such as Lloyds.

They say they have been burned before by banks allowing owners to bypass lock-up agreements, which are meant to prevent too much stock hitting the market too fast and pushing the share price down.

Any boycott could complicate the privatization of Lloyds Banking Group (LLOY.L: Quote), one of the government's most high-profile strategies to show it is improving Britain's national finances and getting banks to lend more to businesses.

"Decisions to blacklist are on people's agenda," said one fund manager at a UK investment house running around 80 billion pounds in assets. "This goes right to the heart of whether we have trust in the markets in which we operate."

This shareholder and the other investors who talked to Reuters all declined to be named because of the sensitivity of the situation.

The debate was prompted by a deal in May, where Lloyds sold 15 percent of wealth manager St James's Place (SJP.L: Quote), just over 10 weeks after a previous sale, despite having agreed not to reduce its stake further for at least a year.

The lock-up was waived by bookrunner Bank of America Merrill Lynch (BAC.N: Quote). Lloyds and BoAML declined to comment.   Continued...

Pedestrians walk past a branch of Lloyds Bank in the City of London November 3, 2009. REUTERS/Andrew Winning