By Mark Kleinman, City Editor
George Osborne is to rule out a pre-election sale of Lloyds Banking Group shares to the general public, confounding expectations that the Government would seek to offload part of its remaining stake to retail investors as soon as next month.
Sky News has learned that the Treasury has decided that stock market volatilty and the time required to execute a public share sale would create an unacceptable level of risk for ministers to undertake a mass retail offering.
Officials have decided that the costs involved with a marketing and advertising campaign would be unjustified at a time when there are residual uncertainties about the ability to complete such a transaction.
Continuing uncertainty over the timing of Lloyds' planned resumption of dividend payments, the outcome of Bank of England stress tests and next month's Scottish independence referendum are also understood to be factors in the decision not to proceed with an imminent mass market share sale in the coming weeks.
The period needed to assemble the documentation for such a transaction would also mean that a retail offering would not be feasible until the turn of the year.
By that point, the General Election will be only four months away, and a multibillion pound share sale to the public could provoke accusations that the Chancellor was using a state-owned asset for political purposes.
Lloyds, which is headquartered in Scotland, has warned of potential risks arising from a 'Yes' vote, most recently in its half-year results last week.
During the last year, the Treasury has sold two tranches of Lloyds stock for a total of about £7bn, in the process reducing its shareholding from just over 40% to 25%.
It is conceivable that Mr Osborne will continue to sell shares to City institutions ahead of the election, although Wednesday's news makes it less likely that the Government will have returned Lloyds entirely to the private sector before next May's poll.
Lloyds shares were trading at around 73p on Wednesday morning, representing a fall of roughly 4% during the last year and slightly below the average price taxpayers paid to bail out the company during the 2008 financial crisis.
The remaining 25% holding is managed by UK Financial Investments (UKFI), which has been closely involved in initial preparations for a retail offering.
Mr Osborne has previously signalled his ambition for a retail offering although Treasury sources pointed out that one had never been formally announced.
A senior banker suggested that the controversy over last year's privatisation of Royal Mail and the fact that thousands of retail investors were angered by having their share applications shares rejected might also have influenced the Treasury's thinking.
Lloyds has been recovering steadily under Antonio Horta-Osorio, its chief executive, although it recently took its bill for payment protection insurance mis-selling beyond £10bn.
It was also fined almost £220m for manipulating the interbank borrowing rate Libor.
Lloyds hopes to resume dividend payments after more than six years when it reports full-year results next February, pending the outcome of discussions with regulators.
The Treasury and Lloyds declined to comment.
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