Lloyds Grp 9.25 Discussion Threads

[yupawiese2010] 26/3/2018 12:43

Following the bombshell Aviva plc’s dropped on the sterling preference share market that it considers irredeemable preference shares can be cancelled at par without a vote of preference shareholders the entire UK market in preference shares has been destabilised. The FCA is uniquely positioned to resolve this and I am pushing very hard for that. However, in the meantime responsible issuers of preference shares should be announcing that they will not look to exploit this loophole and will amend their articles of association to provide that a separate vote of preference shareholders must be help. Ecclesiastical Insurance and, now, Aviva have both made positive statements. However Lloyds Banking Group has been notably silent in respect of its irredeemable 9.25% and 9.75% preference shares. I am writing to Antonio Horta-Osorio to ask that he makes a public statement on the matter.

Links to useful information:

Lloyds Banking Group Preference Shares terms:

hxxp://www.lloydsbankinggroup.com/globalassets/documents/investors/2009/2009jan16_ltsb_t1_oc_gb00b3ksb238_gbp100m_9.75pc.pdf

Lloyds Banking Group capital issuance:

hxxp://www.lloydsbankinggroup.com/Investors/fixed-income-investors/capital-issuance/

Lloyds Banking Group articles of association:

hxxp://www.lloydsbankinggroup.com/globalassets/documents/our-group/corporate-governance/articles_of_association_lbg.pdf

[my retirement fund] 23/3/2018 08:53

Well glad I didn't dump my other half. Even happier I put it into Av.a and Gaca. Feel sorry for those who sold tho. What a bloody cut throat world this is. Bloody stupid that these execs cant act honestly or fairly what the hell is wrong with some of them?

[stemis] 23/3/2018 08:36

I guess for those who held on through this debacle there has been a positive from all this. It's effectively eliminated a risk we didn't know even existed...

[my retirement fund] 19/3/2018 22:15

Prehaps they have. Who's to say they are not behind or part of the instigation of Avivas present actions and they are just awaiting a precedent to be set?

[loglorry1] 19/3/2018 21:41

MRF so why haven't they acted already?

[my retirement fund] 19/3/2018 21:33

So then they are also highly incentivised. They will also have the sympathy of the regulator.In the context of the entire construct then, we are the enemy.

[my retirement fund] 19/3/2018 16:43

Log you have to pay a 25p premium roughly for the Lloyds over Aviva.You have to ask yourself what part of that premium you ascribe to the clarity of any information in the terms that say they cant use a capital reduction to cancel them. We can assume if Aviva can Lloyds will be first in the queue to follow.Do you know if the Lloyds prefs are still counted as regulatory capital from 2026?

[redartbmud] 19/3/2018 16:22

PO

Brilliant.
Respect.

[pierre oreilly] 19/3/2018 16:18

I wonder if shareholders would agree to a proposal for all future director benefits/options to be paid in llpc instead of lloy.

It all seems like a lot of hassle as well as all the disgrace lumnped onto the directors. How much extra would it cost lly to simply offer say 170p, then buy the rest in the market? Knock off solicitors'/consultants' fees in the calc.

[redartbmud] 19/3/2018 14:56

"If it's not clear cut then you can hang on and clip the nice yield."

I agree it is certainly not clear cut, and everyone should take a view.
I did so with the ECN's, which redemption was skulduggery and piracy, but took my 11% to the bitter end. I originally held Halifax PIBS at that coupon for many years, subsequently converted to ECN's. Bought below par, as are my LLPC and LLPE holdings.

The law is a train wreck of decisions that defy honesty, integrity and logic.
The little Portugese' highly manicured and with the lightening zipper, will do anything that enhances his obscenely inflated remuneration package.
I am holding and watching the Aviva scenario.
Irredeemable should be excluded from the dictionary, in future, if any stock in any company is redeemed without the consent of the holders, and ignoring the wishes of ordinary shareholders. After all, we bought ords in the full knowledge of Loans, Prefs etc. that rank above us in a winding up, and furthermore knowing the ongoing interest bill.

[my retirement fund] 19/3/2018 14:33

Yes I agree. Are you adding at these levels then ?

[loglorry1] 19/3/2018 14:26

MRF - I think it makes a different because if the case is clear cut then you can sell into the market today at 150p avoiding 100p later. If it's not clear cut then you can hang on and clip the nice yield. That's why it is worth taking a view on the legality. We are not qualified but we have logical brains one hopes!

I would not expect Lloyds to say anything different. They have no wish to see the price high. It's also very unlikely they'd comment on the Aviva case like Eclesiatical did.

[my retirement fund] 19/3/2018 14:19

I think you can postulate day and night over this but they until there is some definitive guidance from a credible source the market will not be able to correctly apportion a fair price.So credible sources would include the company itself, the regulator or a court.Not sure if you read my post on Marks board but Lloyds took the view theres nothing underhanded in Avivas actions. No doubt its watching events like a hawk and these people cannot be trusted.As anyone who deals with criminals will tell you, if they have form they are more likely to be repeat offenders.

[loglorry1] 19/3/2018 14:06

Nor can I! It's pretty old. I've also another instance like HoF FWIW.

[EDIT] there is this

[loglorry1] 19/3/2018 13:40

I'm not sure you can say "the point of the HOF..." I think you can say in the particular circumstances surrounding the HOF contract the judge found that....

I'm not by any means saying Aviva don't have a legal argument.

My point I made today above was that I think the LLPx terms are a bit stronger than Aviva's terms and I gave the reasons why I thought that.

Obviously if Lloyds went down the same route its likely to end up in court and so "it could be argued" type discussions have some value. If you think none or any of the points I've raised matter then I'd love to know why.

LLPx are retail issues. A court needs to take into account what the person drafting it meant and what the person agreeing to it could reasonably have understood what rights that contract imparted. It may well have been reasonable to assume that despite the fact that it has no risk warning that the prefs could be cancelled at par and that it has a lot of language stating that an almost identical event (but in name) is disallowed they should still have known they could be cancelled at par without a class vote.

Furthermore, the law has evolved. One may well expect that the CA2006 should be interpreted in light of the EU directive Article 74 today.

For the avoidance of doubt I'm not saying LLPx are in the clear. We've certainly sailed into some rocky waters. What I am saying is it's not clear cut either. The market has rightly adjusted the price based on the increase risks.

[loglorry1] 19/3/2018 12:42

Jaknife I agree there are legal precedents but was HoF really that similar? I don't have a copy of the full judgement if you have it can you send it to me? In particular the prefs were trading well below par so there was obviously another reason pref holders wanted to prevent a return of capital. Also I don't think they were described as irredeemable.

I know you don't think that matters because it's not a case of redemption but I'm sure it can be argued that since the prospectus goes to great lengths to state that the preference shares are irredeemable then using another method to redeem them and calling it cancelling and returning capital at par may not fly in the courts. In the case of HoF they weren't irredeemable (as far as I know).

Also as I understand there is also case law which has played out in the opposite way to HoF.

Lastly the HoF judgement is quite old and since then things like Article 74 have come into effect which I think should provide some protection in the way CA2006 is interpreted.

[loglorry1] 19/3/2018 12:01

MRF - certainly its true that the clause I highlighted is concerning liquidation but it could be argued that cancellation is a form of liquidation of the preference shares. I originally took it to mean liquidation of the company. If one is to disregard this clause completely then we have nothing in the prospectus that makes provision for a return of capital in the way that Aviva are proposing.

One could then I suppose just cite the articles which say that one should look at the prospectus (which says nothing) and thus then go ahead and do it.

There are quite a few arguments that this would require a class vote though. For example one could say that the rights of the preference shares holders have been affected (e.g. their right to receive dividends) and thus it requires a class vote. Teh CA2006 does allow for a return of capital and it is ambiguous as to whether a class vote is required or just an overall shareholder vote. Article 74 of the EU Directive seems to support the view that a class vote would be required.

So what can we conclude? Not a great deal but I think it's still fair to say that Lloyds have less legal support and much less motivation to do the same as Aviva.

[my retirement fund] 19/3/2018 11:22

Log theses terms relate to a liquidation. A return of capital in the Aviva manner is not liquidation. Would Lloyds in doing similar simply say the entire paragraph is to be disregarded as it's title is liquidation and terms and description are designed to refer to liquidation.To me it still seems to boil down to a return of capital and cancellation being the same as a redemption. For this I'm afraid we either need regulatory arbitration, or court ruling on that. Until such a time there will always be a cloud hanging over most preference shares and uncertainty of correctly pricing them.I slept on the argument regarding the fact if Lloyds could have they would have during the ECN episode. I do not subscribe to this argument and in fact feel that since they already have a dubious track record and "Form" then in actual fact they are more likely to be the next lot to want to follow in Avivas shoes.As such I have cold half my holding as I felt over exposed.

[loglorry1] 19/3/2018 10:48

JakNife I agree I don't see any other pref issuer taking action until they see what happens at Aviva. Further I don't see Lloyds doing an "Ecclesiastical" style announcement. At the very least the threat of a capital return works in their favour.

I see the legal case for Aviva as being a lot less clear cut than you though and for Lloyds even more so. I also think the motivation for Lloyds to cancel is lower.

[loglorry1] 19/3/2018 10:07

I'll stick my neck out and say that I think LLPC/D have a lot more protection from this "return of capital" wheeze playing out at Aviva than Aviva and GA pref holders. Here is why:-


Rights upon Liquidation

On a return of capital or distribution of assets, whether or not on a
winding-up (but other than a purchase by the Company of any of
its share capital permitted by its Articles and under applicable
law), holders of Preference Shares will rank in the application of
the assets of the Company available to shareholders; (1) equally
in all respects with holders of the most senior class of preference
shares and any other class of shares of the Company in issue or
which may be issued by the Company which are expressed to
rank equally with the Preference Shares and (2) in priority to the
holders of any other share capital of the Company (including the
Junior Share Capital).
Subject to such ranking, in such event holders of the Preference
Shares will be entitled to receive out of the surplus assets of the
Company remaining after payment of the Company’s priorranking
liabilities a sum equal to the aggregate of: (1) £1 per
Preference Share, (2) the amount of any dividend which is due for
payment on the Preference Shares on or after the date of
commencement of the winding-up or other return of capital but
which is payable in respect of a period ending on or before such
date and (3) the proportion of any dividend (whether or not
declared or earned) that would otherwise be payable and is not
otherwise paid in respect of any period that begins before, but
ends after, the date of commencement of the winding-up or other
return of capital and which is attributable to the part of the period
that ends on such date.
*my bold

This is the clause that Lloyds would have to rely on if "cancelling" the preference share capital and returning par to holders in the form or a "capital return".

1. They are clearly talking about a liquidation of assets here not a return of surplus capital the reasons I think this are i) its entitled "rights upon liquidation", ii) it talks a lot about the ranking of prefs relative to other liabilities.

2. This clause much more similar to the clause 4(ii) in the Aviva prospectus There is no equivalent to clause 4(iii) which Aviva are relying upon.

3. The Lloyds clause above clearly states that on a capital return more senior liabilities must first be repaid (see my bold). I think I'm right in saying Lloyds AT1s are senior to these prefs (the ECNs were) so surely they'd have to be repaid first? There are billions of AT1s that would prevent a return of capital on LLPx first. Sort of a capital return stopper like a dividend stopper.

4. If you look carefully at the Lloyds prospectus. "2 Structure of the Preference Scheme (b) Meetings" you'll see the process Lloyds went through when they replaced the HBOS prefs with the LLPx series. It clearly describes meetings for each class of preference shares that took place to grant a resolution to effect the change. In other words they carried out a class vote to enable the prior HBOS prefs to be cancelled and replaced with the new Lloyds LLPx prefs. It's not definitive but if Lloyds required a class vote then that would losely imply they thought a class vote is needed for a capital return/cancellation.

5. Lloyds has excess capital (around £1bn) but in the recent AR they have earmarked this for a ordinary share buy back. On an earnings yield and return on capital basis this makes a lot of sense right now. By buying back ords they extinguish a growing dividend stream which should in the medium to long term create more profits for shareholders than cancelling preference shares.

6. Why now and not at the time of the ECN re-organisation? It seems improbable that the idea that they could cancel the prefs at par is a new one. They would have had lawyers look at this in detail during the ECN organisation and perhaps even before when they knew these prefs were not going to be treated as T1 capital. I'm speculating obviously but if they thought they could do this they would have done so by now.

7. Perhaps only a small point. Lloyds went through a pretty painful process with the ECNs losing in court then being overturned later at Supreme Court level to finally triumph. This will have been an expensive and time consuming process. It is perhaps, quite rightly, better to just focus on buying back ordinary shareholders especially as economically it would seem they are getting more bang for their buck anyway.

8. [EDIT forgot this one] The size of the preference share issue and resulting cost of dividends at Lloyds is much smaller as a percentage of the market capitalisation of Lloyds. Pref dividend cost savings are tiny spread across ordinary shares. In absolute terms they are still substantial ~£30m/year but spread across 47 billion shares its not material to ordinary shareholders.