Lloyds Grp 9.25 Discussion Threads

[nicholasblake] 17/6/2020 11:52

What a paraprosdokian!

[investor73] 17/6/2020 11:36

Lloyds preference shares rally as bank breaks silence
By Daniel Grote 26 Apr, 2018

"Lloyds chief financial officer George Culmer yesterday broke the bank's silence on the investments, which have been hit by the fallout from Aviva's move.

'Absolutely no discussion on these and absolutely no plans to cancel these irredeemable preference shares through a reduction in capital,' "

hxxps://citywire.co.uk/funds-insider/news/lloyds-preference-shares-rally-as-bank-breaks-silence/a1114242

[tbow112] 17/6/2020 07:11

"Irredeemable does have a different meaning in other contexts but that's not relevant."

Not relevant ?? The other context just happens to be the document that was used to "sell" the shares to me and to the Scottish court.

[glavey] 17/6/2020 05:58

Is my memory correct? Wasn't LBGs response to the FCA's 'Dear CEO' letter something particularly vague along the lines of they had no plans to 'cancel' (or suchlike term) at this time?
(This time being around 2 years ago)

Those worried might switch to NWBD.

[pierre oreilly] 16/6/2020 21:44

My Retirement Fund16 Jun '20 - 22:38 - 1207 of 1208
0 0 0
Look out chaps Pierre has appeard! A clear sign doom has arrived!




? wtf?

[my retirement fund] 16/6/2020 21:38

Look out chaps Pierre has appeard! A clear sign doom has arrived!

[pierre oreilly] 16/6/2020 21:14

Seems very strange to me that suddenly and out of the blue, several posters have decided to warn llpc holders of the very high risk they have always apparently faced without realising and without disaster! What prompted all these dire warnings which have suddenly appeared on a board which up to now was lucky to get one post a month?

[nicholasblake] 16/6/2020 20:53

tbow You aren't conversant with the companies act are you? Irredeemable does have a different meaning in other contexts but that's not relevant.
Valamos Aviva made restitution because its announcement that the cancellation would take place should not have been made unless it was committed to proceeding. Those who sold assuming it would go ahead were thus misled and suffered loss.
I'm not saying it was an obvious fact. However, if one wants to invest in prefs one needs to know their terms, and that requires one to read the articles and to have a knowledge of companies law.
Ignorance is no excuse for not doing ones due diligence.
And while the treasury committee, who are no experts, were concerned, I very much doubt they would be if the same thing were to happen now.
One simple example might help. If a corporate buyer were to acquire Aviva, there is absolutely nothing to stop it then cancelling its prefs.
I'm signing off now. Feel free to gamble as you wish!

[tbow112] 16/6/2020 20:08

"A court would inevitably find that Lloyds's right to cancel was unaffected by the fact the prefs are denominated 'irredeemable', because that has a specific and well established meaning under the companies act."

Given that the Governor of the Bank of England and CEO of the FCA clearly uses the word "irredeemable" with a different meaning, I think you might have some difficulty in establishing that the use of the word with a particular legalistic meaning is appropriate for a prospectus.

In effect, Andrew Bailey put an end to the argument a few years ago.

[valhamos] 16/6/2020 19:26

tbow112 - spot on. The Treasury Select Committee were certainly concerned about this, hence the questions in the letter linked in my earlier post about how the preference shares were marketed to retail investors and if the information about the redeemability of these shares was not misleading.



nicolasblake - if it was merely "widespread ignorance" then Aviva would not have been criticised by the FCA and the Treasury Select Committee (and forced to make restitution to preference shareholders who sold out) for not abiding by the Listing / Disclosure and Transparency Rules for stating what you consider to be an obvious fact - that these shares can be cancelled at par by way of capital reduction. If Aviva was merely correcting ignorance why were they punished?

[nicholasblake] 16/6/2020 19:25

tbow, you can only rely on the Prospectus for such a claim if you were a holder as a result of the scheme itself.
But even if you could, the Prospectus spells out in legal terms that if there is a return of capital the pref holders get par.
That would be the case if the ords were to have a massive return of capital.
A court would inevitably find that Lloyds's right to cancel was unaffected by the fact the prefs are denominated 'irredeemable', because that has a specific and well established meaning under the companies act.
If you have any doubt find an experienced commercial law solicitor and run your theory past him.

[tbow112] 16/6/2020 18:58

"The FCA's remit is to ensure investors are not misled. At the time of the Aviva debacle there was widespread ignorance of the fact that irredeemable just meant 'of not fixed maturity'."

The problem for Lloyds appears in your first sentence. The word "irredeemable" has two almost opposite meanings, the other one "cannot be redeemed", and is consequently totally unsuitable for use in a prospectus which is intended for public consumption.
While Lloyds, Aviva etc. may be able to repay the prefs. as you suggest, they are also responsible for their prospectuses and might reasonably be expected to pay compensation for the misleading language in those documents. It is not difficult to calculate the appropriate level of compensation.

[nicholasblake] 16/6/2020 18:13

The FCA's remit is to ensure investors are not misled. At the time of the Aviva debacle there was widespread ignorance of the fact that irredeemable just meant 'of not fixed maturity'.
If Lloyds were to cancel in line with its powers under the company act investors could hardly say now that they were unaware of the potential issue.
Be careful.

[valhamos] 16/6/2020 17:35

How can it be "clearly feasible" when Aviva had to back down under pressure from the FCA? And when as of last month the FCA have not finished their deliberations into the whole issue of cancelling preference shares at par? And you think Lloyds would be rash enough to ignore the FCA?

[nicholasblake] 16/6/2020 17:16

It's clearly feasible.
The only issue is whether or not the saving is worth the hassle.
If Lloyds borrows at 0.1% (or less!) to avoid paying 9.25% that's quite a decent margin.

[valhamos] 16/6/2020 17:01

As has been pointed out above because of Aviva the FCA were conducting a review into this issue. In March 2018 Nicky Morgan, then chair of the Treasury Select Committee wrote to Andrew Bailey requesting answers to particular questions - see letter, attached PDF in this link:



We are still waiting to hear the outcome of this review and in fact last month The Treasury Committee sought information on the progress of this FCA investigation.



So while it may be legally possible for Lloyds to cancel the preference shares at par value through a reduction of capital, I personally do not see that as feasible until the the FCA and the Treasury Select Committee have concluded their work.

[my retirement fund] 16/6/2020 16:29

The issue is now that everyone is aware of it, clearly the FSA know about it, have looked at it and have decided its fine. The question is who's going to be the first to use it? My money is on Lloyds !

[investor73] 16/6/2020 16:21

If Lloyds ever dicided to cancel LLPC and LLPD,they will buy them through tender IMO.

[future financier] 16/6/2020 16:09

nb - the difference was that when the cancellations were done in the 1990's it was as you have said "by agreement". This is a nasty "sleight of hand" that "nobody" knew existed until Aviva tried it on and were ultimately defeated by some institutions such as Ecclesiastical Insurance who had a moral compass that was fully operational (unlike the board of Aviva).

[nicholasblake] 16/6/2020 15:24

Difference being that unlike Aviva there are no cross holdings to protect at Lloyds.
And not a 'legal loophole'. It's been part of companies acts since WW2.
The ONLY change is that the relentless fall in interest rates has made it worthwhile, whereas for years prefs traded at or below par.
Cancellations were sometimes done by agreement BELOW PAR in 1990s!

[investor73] 16/6/2020 15:13

If Lloyd could cancel these, they would have done it ages ago. These things can not be done through the legal loopholes. If Lloyds ever want to cancel, they'll have to tender for them or buy in the open market.

[nicholasblake] 16/6/2020 15:00

Articles:
On a return of capital, whether in a winding up or a reduction of capital or otherwise, the preference shares will be entitled to the rights attached to them on issue.
Prospectus:
in such event [return of capital] 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 prior-ranking liabilities a sum equal to the aggregate of: (1) £1 per Preference Share...
A return of capital is implemented pursuant to the Companies Act by way of an EGM of all relevant holders, but ORDS at Lloyds are vast majority of votes.

FYI Irredeemable just means not having the ability to be REDEEMED pursuant to the Companies Act.
FTAOD return of capital and redemption are NOT the same thing.
Paying more than par carries cancellation (i.e. total return of pref capital) risk.
QED.