Lloyds share price (LLOY) advances as retail investors take bond dispute to court

on Apr 1, 2015
Updated: Oct 21, 2019
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Lloyds’ (LON:LLOY) share price has risen today amid news that the British bank is facing a court battle over plans to cancel the high interest bonds of thousands of retail investors who helped prop it up during the financial crisis.

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Yesterday, Lloyds said that it had received a green light from the Prudential Regulation Authority (PRA), the Bank of England’s stability watchdog, to redeem £8.3 billion of Enhanced Capital Notes (ECNs). The hybrid bonds, which can make coupon payments as high as 16 percent a year, were issued to both retail and institutional investors at the height of the financial crisis to boost the lender’s capital cushion. But Lloyds decided in December to redeem about £700 million of the bonds at par value after the group passed a PRA’s stress test on its capital buffers.
Investors who believe the bonds are worth far more than par value and are reliant on the income have lobbied the bank, the regulator, politicians and Bank of New York Mellon – the trustee acting on behalf of certain bondholders — against the decision. As a result, BNY Mellon has notified Lloyds that it is seeking a “declaratory judgment”, meaning the issue will be taken to court to clarify particular points within the bond contract.
A judge will decide in the next few months whether Lloyds buys back the ECNs at face value or pays a premium, reflecting the fact that the notes have up to nine years still to run and deliver a double-digit annual return. Paying the par value would save the bank about £1 billion, analysts have estimated. According to Tradeweb prices, some of Lloyds’ ECNs have jumped in the secondary market today, suggesting investors hope that a ruling on the legality of the bonds’ proposed early redemption will go against Lloyds.
Lloyds’ share price has risen over two percent today, recovering from a subdued trading yesterday, when the bank, along with peer Barclays (LON:BARC), emerged at the top of the Financial Conduct Authority’s (FCA) complaints league table. The regulator said in a statement that Lloyds had received 242,782 complaints in the second half of 2014. Although fewer than in the first six months of the year, the complaints were enough to rank Lloyds as Britain’s second most complained about lender.
As of 13:45 BST, Wednesday, 01 April, Lloyds Banking Group share price is 80.01p.

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