You may have noticed in the news that the Government has recently sold off more of the shares that it owned in Lloyds Bank. This now means that the UK Government owns just 8.9% of the bank. This is a massive decrease in the percentage of Government ownership of the bank which stood at 43% just six years ago.

This now means that the UK Government has been able to recoup £17bn of the £20.5bn that was given to the bank as a bailout between 2007 and 2009. If the share price continues to improve with the general trend of the stock market, then it is reasonably possible that the Government could get close to, if not slightly more on the £20.5bn original bailout cost.

The graph below shows the general trend of the Lloyds Bank share price over the last 5 years.

 

lloyds bank share price

However, you may wonder why the Government doesn't just sell all the shares in Lloyds Bank when they are at a peak? For example in mid 2015 the share price was 87p per share, where as now they are valued at 57p per share. That basically means that the Government is 30p worse off per share that it owns in the bank and with 8.9% of the total shares in Lloyds Bank, that is an awful lot of shares.

So why not sell them all in mid 2015? The answer all comes down to supply and demand. If the Government was to try and sell all its shares at the same time, then the market value of each share would dramatically fall. This is because there would be a massive increase in supply of the shares in Lloyds Bank, however the number of possible buyers would most probably be exactly the same. If this was to happen to Lloyds Bank then it could leave it vulnerable in the future as this would dramatically reduce the value of the company which could impact on how much borrowing / investment that it could carry out. As this is a bank where many people in the UK place their money, if it was to hit financial problems in the future then it is fair to assume the Government would once again end up bailing it back out. This is why it is in the interest of the UK Government to ensure that Lloyds Bank is successful.

If your struggling to understand the above, think of the following concept. If you are 1 of only 10 sports car dealers and only 50 customers a year are looking to buy these cars. There is a good chance that you can ensure that each customer pays the asking price of the car that you are asking for. However, imagine that now 100 dealers have opened up selling the same sports cars. Now you have a problem as now the customer has more suppliers to choose from and you as a seller want to make sure you make the sale and not lose it elsewhere. So the best strategy you can adopt is to reduce the selling price which should attract the customers. Of course this is only happening because of the over supply in the market because there are not enough customers. This is exactly what would happen with Lloyds Bank shares if the Government was to sell them all at once.

Now you know why the Government is not trying to sell all its shares at once.