Any holders of Lloyds Enhanced Capital Notes?

[335d]

In case anyone here holds Lloyds Enhanced Capital Notes, many of which were issued as a replacement for PIBS in 2009, you should be aware that there is an attempt by Lloyds to call them at par, subject to regulatory (FCA) approval. This was announced a few days before Christmas, when many holders may not have been paying attention. The fight is being taken up by Mark Taber, who has had an impressive track record in tackling banks who try and pull this sort of stunt.

Mark (OldBoyReturns) has just written to the FCA: http://boards.fool.co.uk/fca-shoots-retail-ecn-inv...

[335d]

I should have included these links:

http://www.thisismoney.co.uk/money/markets/article...

http://www.telegraph.co.uk/finance/personalfinance...

[Ean218]

I thought this had been seen off earlier last year, but I am surprised they have lasted so long.

I bought some as bonds in the depths of the banking crisis at 35p in the pound as a pure gamble. The interest payments over the last 6 years has paid for them with knobs on so I cannot be too miffed at getting par for them now.

[335d]

No this issue is still going on.

While par may be a good return on your investment, it could be a devastating loss of income for many others, and even if you are in profit, the original terms in the prospectus should still be honoured. There is a great deal of goalpost shifting going on. Lloyds seem to be working on the basis that private individuals would find the risk of adverse costs too high to take them to court. However, I don't think they have considered the way that the internet can be used to bring investors together, particularly when a heavyweight such as Mark Taber gets involved.

Many of the holders of ECNs are pensioners, since they were offered as a replacement to preference shares and Halifax sub-ordinated bonds in 2009. Many of these pensioners may not be aware yet of what Lloyds is planning to do to them. Lloyds actions thus far may constitute market abuse, in issuing a misleading RNS, which in effect created a false market in these securities.

I would encourage those with with pension age parents to check whether they now hold Lloyds ECNs. A petition has just been started here: https://www.change.org/p/rt-hon-david-cameron-mp-s...

[Ginge R]

Lloyds is relying on the defence that what it is doing is legal.. and it is. It also claims that the FCA approved this, in principle, 12 months ago (we need to see what the FCA has to say too..). The reason that Lloyds can do it is because its definitions about what can constitute qualifying capital have changed, and bear in mind too, that UK Asset Management is making similar noises in respect of Northern Rock. Lloyds did make a much better offer last year I think - the kid gloves are off it seems, Lloyds' actions are particularly nasty and brutal though.

Investors feel they are not being adequately compensated for the future interest they would have accrued. And they are right - especially given that Lloyds has history in talking down the value of PIB/ECN - it's like reducing the value of a neighbour's house or making their life intolerable and then offering a stupidly low offer on it. But the issues about fairness and bad faith need to be separated from legitimacy. I had a client who wanted to do this in '09, she asked if she should. I read the terms and pointed out to her at the time, that the bank could wrench it back from her.. did she want that uncertainty? She didn't.

[Ginge R]

And continuing the theme of 'if somethings too good to be true, it probably is', a bouyant client phoned me this evening, regaling me with tales of a takeover offer from an overseas Venture Capital company - a deal which would certainly stand him in good stead if he soldiered on for another 10 years. He mentioned that if succcesful, NewCom had promised not to sell for 5 years and that it had optioned new big ticket items for a 2019 delivery. I asked him how much cancelling the order a year before it could sell would cost them. 'Not a lot' was the reply..

[335d]

Ginge R said:

Lloyds is relying on the defence that what it is doing is legal.. and it is. It also claims that the FCA approved this, in principle, 12 months ago (we need to see what the FCA has to say too..). The reason that Lloyds can do it is because its definitions about what can constitute qualifying capital have changed, and bear in mind too, that UK Asset Management is making similar noises in respect of Northern Rock. Lloyds did make a much better offer last year I think - the kid gloves are off it seems, Lloyds' actions are particularly nasty and brutal though.

Investors feel they are not being adequately compensated for the future interest they would have accrued. And they are right - especially given that Lloyds has history in talking down the value of PIB/ECN - it's like reducing the value of a neighbour's house or making their life intolerable and then offering a stupidly low offer on it. But the issues about fairness and bad faith need to be separated from legitimacy. I had a client who wanted to do this in '09, she asked if she should. I read the terms and pointed out to her at the time, that the bank could wrench it back from her.. did she want that uncertainty? She didn't.

I don't think that is correct. In response to pressure from potential investors in 2009, when trying to flog these things Lloyds hard wired the definition of capital to be Core Tier 1 capital for the purposes of the stress test. The newer test is against Common Equity Tier 1, and these are quite different. While Lloyds no doubt wishes that it had written the prospectus differently to allow for this, a contract is a contract and Lloyds are bound by the terms of the prospectus. Any ambiguity in the drafting will naturally go against the drafter (Contra proferentum), in this case Lloyds.

Even the announcement of the intention to redeem at par (subject to FCA approval) may be unlawful, in that it created a false market in the securities. Lloyds appear to be relying on the difficulty private investors will face in bringing a claim, and potentially being liable to adverse costs running to several million pounds.

If Lloyds press ahead with this plan, I expect the current management will live to regret it, just as they have with previous Lloyds behaviour over PPI, LIBOR fixings etc.

[Ginge R]

I am sure that a firm somewhere will be only to happy to stick one on 'Lark' (?!) pro bono. And good on them too. I was under the belief that the recent stress testing had allowed them the ability to redefine the terms, lawfully, if not morally. If I got that wrong, thank you for correcting me so graciously.

[335d]

Ginge R said:

I am sure that a firm somewhere will be only to happy to stick one on 'Lark' (?!) pro bono. And good on them too. I was under the belief that the recent stress testing had allowed them the ability to redefine the terms, lawfully, if not morally. If I got that wrong, thank you for correcting me so graciously.

It is almost certain that they would not have been able to sell them to the 123,000 retail investors had the prospectus allowed them to redefine the stress test in this way. They were sold on the clear understanding that they would be tested against Core Tier 1 capital. If you think back to conditions in 2009, the ability to get these things away was absolutely critical, hence the acceptance that they would have to do what buyers were asking.

An opinion has been sought from a leading QC to confirm this. There is a further complication in that the FCA (or rather its predecessor the FSA) has its fingerprints all over the issuing of ECNs, which makes the FCA too conflicted to be in a position to decide if a Capital Disqualification Event has occurred. The FCA needs to submit this decision to a Judicial Review in order to retain any credibility. The FCA's future is at risk if it fails to recognise the conflict of interest.

Now that Mark Taber has become involved, Lloyds would do well to recognise that he has a remarkable track record in defending retail bondholders against this sort of dishonest practice. The banks that he has gone up against have been forced to back down, and I expect the same result is likely here. I understand that Mark has no position in these bonds, but has taken up the case as a matter of principle.

I would encourage any holders to read the following article and to register with Mark on the following site:

http://www.fixedincomeinvestments.org.uk/fixed-int...