Here's an alternative theory as to why George Osborne has suspended the Lloyds share sale

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British Chancellor George Osborne arrives on day one of the Conservative Party Conference on October 4, 2015 in Manchester, England. Up to 80,000 people are expected to attend a demonstration today organised by the TUC and anti-austerity protesters. Conservative Party members are gathering for their first conference as a party in a majority government since 1996. (Photo by )

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British Chancellor George Osborne.

Britain's Chancellor George Osborne is delaying the planned sell-off of Lloyds Bank shares due to market turbulence.

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To be clear - he said the Treasury's pledge to sell £2 billion ($2.8 billion) worth of shares in the publicly-owned bank at a 5% discount to the general public in one of the biggest privatisations in years would resume once "when turbulent markets have calmed down."

The Treasury sent Business Insider a statement from Osborne saying:

"I want to create a share owning democracy. It's also my responsibility to ensure economic responsibility so with these turbulent financial markets now is not the right time to have that sale. We will sell Lloyds to the British people but we will do so when the time is right."

All people who registered for the share sale also received the following email:

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HM Treasury/Lianna Brinded

But we can't help speculating about other motives. The move comes at an interesting time for Lloyds - here's why:

1. Markets have been sliding for ages and the share sale plan was announced during it

The government was forced to pump £20.5 billion ($32 billion) into Lloyds at the height of the financial crisis in 2008 and 2009. Shares in the struggling lender were bought at an average price of 63.1 p when fees are factored in. The government was going to sell a £2 billion ($3 billion) slice of its remaining 11.98% stake in the bank to retail investors in the spring.

If Lloyds shares were to be sold now, the stock price is at 64.91 p - in line with what the government bought it for. However, Investec analyst Ian Gordon pointed out in a note that retail investors are offered a 5% discount to the market price, with a bonus share for every 10 shares held by buyers for more than a year.

Investec's Gordon said:

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"If Osborne were to have gone ahead with the sale to retail investors ... this would have produced an effective price of sub 60 pence. That would be politically and economically impossible to justify. So I think that this (decision) is perfectly sensible."

Chinese soldiers enjoy a ride on a rollercoaster at an amusement park in Beijing July 31, 2005. China marked Army Day on Monday with a pledge never to engage in expansionism but warned self-rule Taiwan against formally declaring statehood.

Reuters

Markets rollercoaster.

Laith Khalaf, Senior Analyst at Hargreaves Lansdown also said in a note that:

"The fall in the Lloyds share price has left them around 10p below what the government thinks it needs to break even, and together with the planned 5% discount and bonus share scheme would have meant the Chancellor putting his hand in his pocket, so now he looks to be pinning his hopes on a recovery in markets later in the year."

So can the government really be that worried about the price? Selling now would probably seem like too much of a bargain for a retail investor but not enough for the government to justify it.

But then again, look at what happened with Lloyds less successful counterpart.

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Around seven years ago, RBS had to beg the government for a bailout. Over 2008 and 2009 it borrowed £45.4 billion ($70.1 billion), worth 500p per share, from the taxpayer and it has yet to pay it back. The government originally owned 83% in the bank and it currently still owns 73% of RBS.

Last summer, UK Chancellor George Osborne sold off a chunk of RBS shares for around 330p per share. He made a £1 billion loss and was heavily criticised by politicians and the public for bringing the taxpayer stake down to 73%.

Regardless of market turmoil, RBS announced a massive £2.5 billion ($3.6 billion) hit for 2015 due to litigation issues. Shares are now around 252.30p. There is no way RBS is remotely going to be considered for privatisation imminently.

Lloyds shares initially fell by 2.50% at midday after Osborne's announcement on Thursday but are now trading up at around 64.90p per share around market close on Friday.

Market turmoil began in 2015. This isn't anything new. Fears over corporate debt in China and collapsing oil prices have spooked investors.

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The FTSE 100 fell 5% in 2015 and is down 4.5% so far this year.

Meanwhile Lloyds is down nearly 14% since the government announced the stock sale in October last year.

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2. A trader at Lloyds is undergoing a fresh investigation into the alleged manipulation of government debt

On top of shares being in line with the price the government paid, earlier this month Lloyds became embroiled in a new investigation by UK regulators into potential manipulation of government debt prices by one of its traders.

lloyds antonio horta osorio

Reuters

Lloyds Chief Executive Antonio Horta-Osorio speaks at the British Chambers of Commerce annual meeting in central London February 10, 2015.

Reports from The Independent and other media outlets said the Financial Conduct Authority is in the early stages of studying whether a Lloyds trader tried to fiddle the price of UK government bonds to arbitrage the market - pushing the prices of gilts down when buying and driving them up selling to investors.

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Lloyds is assisting with the investigation, which is understood to focus on the trader involved rather than the bank.

At the time, the FCA declined to comment. Lloyds said it did not comment on speculation.

However, the cost of potential litigation is likely to be front and center in any investors' minds.

A well-placed source close to the Treasury told Business Insider UK that this hasn't got anything to do with the share suspension.

Lloyds said to Business Insider that "there is no comment from Lloyds on this. This was a decision made by the Chancellor." The Treasury responded to Business Insider with a statement from Osborne at the top of the story without further comment.

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