Tens of thousands of private investors have secured a victory over Lloyds Banking Group which has been prevented by a high court judge from withdrawing bonds which paid high rates of interest.
The bailed-out bank had hoped to save £200m a year in interest payments by forcing holders of the bonds – which paid rates of between 6% and 16% – to receive no more than the face value of the bonds.
The bank intends to appeal against the decision, which was led by activist Mark Taber, who was also involved in securing better terms for holders of bonds in Co-operative Bank during its crisis in 2013.
The decision comes as the government presses on with its plan to further reduce its stake in Lloyds. It has cut its stake from 43% to below 19% and is preparing an offering of shares for retail investors in the next 12 months.
The court ruling relates to enhanced capital notes (ECNs) issued by Lloyds in 2009 and, Taber said, used to help the bank avoid taken part in the government’s asset protection scheme which was set up to insure risky loans issued before the crisis. At the time £8bn worth of bonds were issued by Lloyds although £5bn worth held by big City investors were exchanged for other bonds last year. Of the remaining £3bn, Lloyds had wanted to redeem £700m.
Lloyds argued it should be allowed to cash in the ECNs because they had not been counted as part of its capital cushion during stress tests by the Bank of England in December. However, the judge said this did not count as a disqualification event as the ECNs might count as capital in the future.
“The group is disappointed with the decision and has sought permission to appeal to the court of appeal,” Lloyds said.
“In the event that the group is unsuccessful in the appeal the opportunity to refinance these high coupon securities, with an associated benefit of [approximately] £200m per annum for the next five years, would be foregone,” the bank added.
Taber, who said more than 100,000 retail investors had bought the ECNs in 2009, said: “I think Lloyds should take the decision on the chin.”
