In Depth

Lloyds' boom-era bosses sue bank for bonuses

Eric Daniels and Truett Tate claim they should have received a full payout in 2012

Lloyds boss in show of confidence on share price recovery

29 June

Lloyds Banking Group's chief executive Antonio Horta-Osorio has offered what the Daily Telegraph calls a "show of confidence" that the company's post-Brexit problems are only temporary.

Horta-Osorio bought another 100,000 shares in the group, at a cost of £54,200, after the share price crashed in the wake of the shock result of the EU referendum last week. He has never sold any shares, the Telegraph notes, and now owns 11.9 million outright, equivalent to a stake of 1.6 per cent.

Bank stocks have been among the worst hit on markets in the last few days as they are considered economic bellwethers which are especially exposed to the negative economic effects of Brexit.

Lloyds itself was up 2.7 per cent for today to around 56p at 11.45am, following a 7.4 per cent surge yesterday. It is still 22 per cent down on its pre-referendum price, however.

It is not alone - Royal Bank of Scotland has dropped 29 per cent while Barclays is down 27 per cent since Thursday. At a fall of just 0.6 per cent, HSBC has been least affected as it is seen as less domestically exposed.                                                                                               

Horta-Osorio has not been the only chief buying up shares in their own bank this week: two Virgin Money directors purchased stock in their challenger bank, while four at Shawbrook Bank bought 126,150 shares after a huge 53 per cent fall in the price over three days.

"Those purchases indicate the bosses believe shares will bounce back – a view matched by analysts who widely believe the crash in prices since Thursday’s referendum is an indicator of shock in the market, rather than a reflection of underlying weakness in banks," says the Telegraph.

Both the Lloyds and RBS chief executives were sounding upbeat tones to their own staff after the Brexit vote, Reuters says.

In a memo, Horta-Osorio said the bank "had robust plans in place for either outcome" and that its low-risk lending approach and historic brands put it in a position of strength "to weather turbulence in our sector and the wider market".

Lloyds wins Supreme Court backing over £1bn bond payouts

16 June

Lloyds Banking Group has secured a conclusive victory at the Supreme Court in its long-running battle with its own bondholders.

The bank has been trying to buy back hundreds of millions of pounds' worth of high-interest bonds since the beginning of last year, which the BBC notes would be replaced with standard bonds paying a market rate of interest to save around £200m a year for up to five years.

Bondholders, many of whom are pensioners, are angry because the bonds are trading well above the issue price at which Lloyds will now buy them back. Interest rates will also fall from as much as 16 per cent to low single digits, cutting a lucrative income stream.

The High Court originally found for the bondholders, but this was overturned by the Court of Appeal in December. Today's ruling settles the matter for good.

Originally issued as permanent interest-bearing shares by building societies later acquired by Lloyds, the bonds were created in their current form in 2009, at the height of the financial crisis and when the bank was facing a liquidity crunch.

High interest was offered to entice investors to convert to the new notes, which would count towards Lloyds' capital reserves.

However, the bonds were not counted towards the capital reserves total during regulatory "stress tests" on the bank's financial strength in 2014. Lloyds argued this constituted a "capital disqualification event" that allowed it, under the terms of the bonds, to buy them back at face value.

The Supreme Court today agreed with that interpretation by a narrow margin of three to two.

Campaigner Mark Taber, who had been working on the bondholders' case, told the Daily Telegraph that the judges were not provided with evidence related to the wording of the bonds' prospectus.

"[Regulators] have refused to disclose exactly what they and Lloyds knew about forthcoming changes to capital requirements at the time the [bonds] were issued," he said.

"I believe the changes they knew about, which were not disclosed in the… prospectus, meant that a capital disqualification event was a certainty at the time the [bonds] were issued."

A Lloyds Banking Group spokesperson welcomed the decision, saying: "The group has sought to balance the interests of all stakeholders including our 2.6 million shareholders, as it takes steps to meet the requirements of the changing regulatory landscape and manage its capital requirements efficiently."

Remain vote 'would trigger autumn sell-off for Lloyds'

03 June

The government could sell its final nine per cent stake in Lloyds as early as September if Britain votes to stay in the European Union, according to experts

City analysts said victory for the Remain campaign will bring certainty to the markets, boosting the share price of Lloyds beyond the 73.6p point at which taxpayers can break even, reports the Belfast Telegraph.

Should the price rise significantly beyond that milestone, the Treasury may even bring forward a discounted retail sale of £2bn worth of its stake, which was promised at the 2015 election but been  delayed by a slump in share prices.

The earliest opportunity to renew the sell-off would be in the autumn, after the publication of the bank's interim results in July.

"If we get a remain vote, we see the markets rising. We know the government is keen to no longer be shareholder in any of the banks and if the market conditions are right, then September or October is a distinct possibility," Danny Cox, of Hargreaves Lansdown, told the Press Association.

Investec analyst Ian Gordon is also predicting that George Osborne could make his move in the autumn. "If you have a set of circumstances which leads to the price comfortably in excess of 73.6p in the second half of the year, I would expect the Treasury to do exactly that," he said.

Shares in Lloyds currently stand at round 71p, although they briefly broke through the 73.6p mark on 25 May, closing at 73.74p. This triggered speculation that a drip-feed sale of shares to institutional investors could soon recommence.

Osborne delayed the sale of the government's final stake in the high street lender in January, blaming turmoil in the global markets. The Chancellor said he would wait until the volatility had "calmed down" before pressing ahead with the sale.

Referring to the latest speculation, a Treasury spokesman said: "Any future share sale would depend on market conditions at the time."

Lloyds Libor allegation could 'contradict' £218m settlement

01 June

Allegations made in a private lawsuit have raised fresh questions about the regulatory investigation into Lloyds that eventually led to a £218m fine for rigging global interest rates.

The Times reports that during a court case brought against the bank by a care-home operator, it was claimed that former chief executive Eric Daniels and his then deputy, Mike Fairey, knew about manipulation of Libor interbank lending rates as early as 2008.

The two were alleged to have taken part in a meeting at the British Bankers Association in April 2008 "at which manipulation of the interbank Libor lending rate was… discussed".

This would imply that top bosses knew about the rigging and "kept silent" - and "would appear to contradict" the July 2014 final notice issued to Lloyds by the Financial Conduct Authority (FCA) at the conclusion of the Libor inquiry.

In Lloyds's official response to the FCA's reprimand and fine in 2014, it said: "The issues subject to the settlements were restricted to a specific area of the business and were not known about or condoned by the senior management of the group at that time."

John Virgo QC, acting on behalf of care-home operator Wingate, which is claiming damages from Lloyds for alleged mis-selling of a financial product linked to the Libor rate, told the Times: "We have asked for confirmation that those two individuals were present at that meeting and the position at the moment is it has certainly not been refuted."

In a statement, the FCA said: "We do not think the suggestion that 'the official findings against Lloyds that no senior managers had any knowledge of problems with Libor' is a correct characterisation of what is in the Lloyds Libor final notice."

The allegations drag Daniels back into the Libor row five years after he stood down from his role. It could also re-ignite anger over loose regulations in place at the time of the activities and the response to the scandal, which has so far failed to yield much in the way of major punishments or criminal charges for senior bankers.

A spokesman for Lloyds said: "Our statement of 28 July 2014 still stands. That statement made clear that the group condemned the actions of the individuals responsible for the conduct in question… and that these actions were not known about or condoned by the senior management of the group at the time."

Lloyds share sale edges closer as bailout break-even passed

26 May

Completing the return of Lloyds Banking Group to the private sector has shot back up the agenda after shares surpassed the government's bailout break-even price for the first time this year.

During a volatile period for global markets, which has hit the banking sector in particular amid fears over slowing economic growth and exposure to the troubled energy sector, Lloyds had slumped as low as 56p in February. Even after a wider stock market rally, stock was languishing at 64p just three weeks ago on 5 May.

This is well below the 73.6p the Labour government paid on average to acquire a 43 per cent stake in its £20bn bailout at the height of the financial crisis – and below which the Chancellor George Osborne has vowed not to sell.

But yesterday, following a 15 per cent surge from its May nadir, the stock closed at 73.74p – hitting over the bailout price for the first time since December. If it remains above this level for a few sessions, it is likely the "drip-feed" sale of shares to institutional investors would start afresh.

In turn, this raises the prospect of the government bringing forward plans announced ahead of the 2015 election, but since put on hold, to complete the bank's privatisation through a discounted sale of £2bn worth of shares to ordinary investors.

On 18 May, Treasury minister Harriett Baldwin reiterated the government would hold this retail sale before the end of the current financial year. This promise is one of the reasons for the price hike in the past month and came as Baldwin revealed a £130m dividend payment had taken the total return on the Lloyds disposal so far to £16.8bn.

For the moment, a moratorium on selling down the taxpayer's remaining nine per cent stake will remain in place, as shares have dipped back below the break-even price today. Despite modest gains on the FTSE 100 index overall, Lloyds is down 0.7 per cent at 73.2p.

Invezz reckons this is most likely in response to today's publication of financial sector complaints data, which showed payment protection insurance remains the most complained-about product. Lloyds is by far the bank most exposed to the scandal, having already paid out around half of the near £24bn given in compensation so far.

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