* Sale of 9 pct UK stake to resume after Brexit halt
* UKFI recommends scrapping sale to general public
* Analysts question timing of sale
* Hammond says no plan to sell RBS shares now
(Adds Hammond comment on RBS)
By Andrew MacAskill and Sinead Cruise
LONDON Oct 7 Britain will resume selling its
residual 3.6 billion pound ($4.5 billion) stake in Lloyds
Banking Group after a break following the country's
vote in June to quit the European Union.
UK Financial Investments Limited (UKFI), which manages the
government's stake in the bailed-out bank, said it would
relaunch a trading plan led by Morgan Stanley to try to return
Lloyds to full private ownership over the next 12 months.
The plan means the shares will be offered in increments to
institutional investors, with the first sales likely in the
UKFI has recommended scrapping plans to sell some of those
shares via a discounted offer to the general public, risking
disappointing thousands of small investors hoping to cash in on
growth at Britain's biggest mortgage lender.
"Returning Lloyds to the private sector is in the interests
of the bank, taxpayers and the country as a whole. That is why
exiting our stake in Lloyds in an orderly way and at the best
possible price is one of my top priorities," Finance Minister
Philip Hammond said in a statement on Friday.
The government currently owns about 6.5 billion ordinary
shares in Lloyds, representing about 9 percent of its shares.
Hammond said he had no plans to start selling shares in
fellow state supported lender Royal Bank of Scotland due
to an investigation by the U.S. Department of Justice into the
alleged misselling of U.S. mortgage-backed securities and delays
in the sale of unit Williams & Glyn.
Market conditions were also not right for the sale, he told
reporters during a trip to Washington.
After a 28 percent fall in the value of Lloyds stock so far
this year, some analysts questioned whether restarting share
sales in the middle of a banking share slump represented the
best value for taxpayers.
"Having sold 11 billion shares at 81.4 pence over the last
18 months, it would appear that the Chancellor is now willing to
sell them at a ballpark 50 pence, which I find slightly
surprising," said Ian Gordon, an analyst at Investec.
"Selling assets before the (November) Autumn Statement may
play a part in his thinking but I thought he had removed those
pressures by pretty much abandoning all plans to balance his
budget," Gordon added.
Lloyds shares slipped 5.5 percent to a two-month low of 52p
by 1415 GMT.
Lloyds was rescued with a 20.5 billion pound taxpayer-funded
bailout during the 2007-09 financial crisis, leaving the state
holding 43 percent.
So far the government has recouped about 16.9 billion pounds
after the finance ministry began selling off its stake in 2013.
In January, the government posted a planned sale of shares
in Lloyds due to turmoil in global financial markets.
Hammond himself has stopped short of scrapping an eagerly
anticipated share sale to the public but few investors and
analysts expect the offer to be revived, especially if the
trading plan goes well.
That would break with the Conservative government's previous
commitment to offload the shares in one of biggest public
privatisations since the 1980s, when Margaret Thatcher's
administration sold shares in British Telecom and British Gas.
The decision comes as the government faces increased
pressure to recoup the 9 billion pounds it said it planned to
gain from selling stakes in Lloyds and RBS this year.
Earlier this week, it also announced plans to restart the
sale of almost 16 billion pounds of Bradford & Bingley mortgage
loans, in a further sign of renewed confidence in the economy.
Lloyds Chief Executive António Horta-Osório welcomed the
decision, saying it will help return the bank to private hands.
(Additional reporting by Noor Zainab Hussain in Bengaluru and
David Chance in Washington; Editing by Keith Weir and Alexander