LYG Lloyds Banking Group Plc

By Jason Douglas and Max Colchester 

LONDON--The U.K. government said Thursday it has postponed a planned sale of shares in the partially state-owned lender Lloyds Banking Group PLC, citing ongoing turmoil in financial markets.

The news is the latest sign of nervousness in stock markets following weeks of volatility triggered by fears over the health of the global economy.

The government will only sell "when the time is right," Treasury chief George Osborne said. "With these turbulent financial markets now is not the right time to have that sale," he said.

A spokeswoman for Lloyds Banking Group said the timing of any future retail sale is a matter for the government.

The British government began selling its stake in the lender last year and currently owns less than 10% of the bank, which was bailed out by taxpayers in 2008.

Officials were planning to sell GBP2 billion ($2.8 billion) worth of shares to the public this spring but Lloyds' market value has fallen 15% in the last three months as concerns about the health of the Chinese economy have dragged down stock markets world-wide. It isn't clear when the sale will now take place.

In December the government extended its plan to drip-feed Lloyds shares into private hands by six months. Some 11.2 billion Lloyds shares have already been sold. The sales, being handled by U.S. investment bank Morgan Stanley, have so far netted the Exchequer GBP16 billion. The cash has been earmarked for reducing the national debt.

The postponed sale was targeted at members of the general public rather than financial institutions. Advisers to the government had long been skeptical about the practicality of such public offerings, because they are long and complex and can leave potential shareholders open to large swings in the share price. Also, at 2.7 million, Lloyds' shareholder base is already one of the largest in the FTSE 100.

The government has been under pressure to share some of the upside of its vast bank privatization plan with ordinary taxpayers and not just institutional investors. Would-be buyers were offered a 5% discount to the market price and the treasury said investors who hold on to the stock for more than a year would receive one bonus share for every 10 purchased. Small investors buying less than GBP1,000 worth of shares were to have priority.

Write to Jason Douglas at jason.douglas@wsj.com

(END) Dow Jones Newswires

January 28, 2016 08:17 ET (13:17 GMT)

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