Lloyds Bank boosted its capital by 685 million pounds via the sale of its remaining stake in wealth manager St James's Place, raising hopes it can soon pay dividends again for the first time since its 2008 bailout.
The lender, 33 percent owned by the British government which put up 20.5 billion pounds to save it from collapse, said on Tuesday it had sold around 109 million shares in St James's Place to financial institutions at 630 pence per share.
Gross proceeds, excluding costs and expenses, were 680 million pounds and the bank said it would make a profit on the sale of 105 million pounds.
Lloyds needs to plug an 8.6 billon pound shortfall identified by Britain's financial regulator in June before it can persuade the regulator to allow to pay dividends again, and is currently selling non-core assets to strengthen its balance sheet and focus on lending to UK households and businesses.
It has also reduced its loan book, cut costs and reined in bad debts, helping its shares to more than treble in value over the past two years and enabling the government to start offloading its stake in the bank.
"We see no controversy at all with the (widely anticipated) resumption of cash dividends at 2013 full-year results in February," said Investec analyst Ian Gordon.
Lloyds also said on Tuesday that the sale of its 21 percent stake in St James's Place would increase its common equity Tier 1 capital by about 24 basis points under full Basel III capital rules. Its core tier 1 ratio - a gauge of a bank's financial strength - stood at 9.9 percent at the end of the third quarter. Lloyds is targeting a core tier 1 ratio of above 10 percent by the end of 2013.
Lloyds has taken a number of steps to bolster its capital, selling businesses and loans that are not deemed to fit with its long-term strategy. It has also cut back on the countries in which it operates and expects to be in less than 10 by the end of 2014 compared with 30 two years ago.
Lloyds previously sold a 20 percent stake in St James's Place in March and a further 15 percent in May. Last month it sold its fund management arm Scottish Widows to Aberdeen Asset Management. The bank is also planning a stock market flotation of more than 600 branches which have been rebranded TSB which it must sell to satisfy EU state aid rules.
Meanwhile, the bank's sale of non-core loan portfolios has gathered pace in recent weeks. Last week, it sold a portfolio of Irish home loans to U.S. private equity firm Apollo for 257 million pounds and last month it sold a 1 billion euro book of euro-zone commercial real estate loans to U.S. hedge fund Cerberus.
Shares in Lloyds were up 0.7 percent to 78.8 pence at 1040 GMT, with St James's Place shares up 0.5 percent to 647 pence.
St James's Place reported a recorded level of funds under management in October, boosted by buoyant markets and a surge in inflows as investor confidence returned. The sale means it will become full independent for the first time since Halifax bought a 60 percent stake 13 years ago.
(Reporting by Matt Scuffham; Editing by Sophie Walker)
By Matt Scuffham