Lloyds Banking rights offer: Is it worth taking?
Noon on June 5th is the very final acceptance date for the millions of Lloyds Banking small shareholders to take advantage or not of the lender's open offer.
Around ten per cent of Lloyds Banking shareholders are small shareholders - accounting for 2.8 million people - and they should have now received packs from the bank outlining their options.
Many would have held Halifax shares after it demutualised and was then merged in turn with Bank of Scotland and then Lloyds TSB.
The offer is at 0.6213 Open Offer Shares for every Existing Ordinary Share at a fixed price of 38.43p per share.
This represents a discount of 8.5 per cent on the closing price of March 6th 2009, and a 54.6 per cent reduction on May 13th when it was announced.
More recently Lloyds Banking has been trading at around 65p.
A year ago - before the crisis and the merger with HBOS - they stood at over 380p.
An average smaller shareholder with 550 shares would have to pay around £131 to take advantage of the offer.
However, the scheme is not so simple.
Shares not bought by Lloyds Banking shareholders will be sold on the markets and the proceeds will be distributed among those not taking up the offer.
A total of 10,408,535,000 new Ordinary Shares will be issued to raise approximately £4 billion.
Depending on how many shares are bought, the Treasury will end up holding between 43.4 per cent and 65.1 per cent of Lloyds Banking.
Keith Bowman, at Hargreaves Lansdown, advises people to consider their options carefully if they have extra money before investing it in Lloyds Banking.
"On one hand, the market consensus is still negative in tone. A broad look at analysts' opinions is cautious or negative. But on the plus side there is a discount that is attractive."
He urged people to consider Lloyds Banking's position with a change in management taking place, heavy exposure to the UK property market through HBOS and a lack of overseas diversification that lenders such as HSBC have.
"You need to look at your wider investment portfolio," Mr Bowman said, explaining with a lot of investors very heavy on banks, they would have to ask themselves if they wanted to add extra exposure to that area.
He also urged caution for those taking a 'buy and hold' strategy with the idea of buying shares and holding them for a number of years.
"Buy and hold has not always worked," he said. "Ten years ago it would have been the assumption, but the FTSE 100 has been flat over the last ten years."
Nick Raynor, investment adviser at The Share Centre, explained shareholders should make the most of a "bad scenario".
"With the heavily diluted share price, they will gain a little bit even if they buy and sell the next week," he said.
"It will also help to keep the government's stake down," he said, adding the removal of the government's preference shares in Lloyds Banking would eventually see dividends return.
Mr Raynor also warned people to not to just hope for a pay-out from when Lloyds Banking sells on unwanted shares.
"We think this is likely to be minimal, as big institutions will not want to pay a lot for the shares," he said.
Some small shareholders may even receive nothing if they wait for proceeds of the sale of shares, as amounts under £3 - after the cost of running the sale is deducted - will be donated to the British Heart Foundation.
Mr Raynor stated this would probably affect most small shareholders.
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