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Investors beat Lloyds bid to withdraw high-interest bonds

Kit Klarenberg
Written By:
Kit Klarenberg
Posted:
Updated:
05/06/2015

Savers and investors have secured a High Court victory over Lloyds Banking Group, as a judge has blocked the bank’s application to withdraw high-interest bonds paying between 6 and 16 per cent.

In 2009, when Lloyds almost collapsed, the bank altered its bond offerings to a different form of investment, known as an enhanced capital note (ECN). While working in a similar way to high-interest bonds, the ECNs could be redeemed ahead of their maturity dates at a price equal to their original face value.

In December last year, the bank publicly declared its intention to redeem the high-interest bonds, stating the move would save £200m annually in interest payments. The announcement of the move provoked widespread outcry, with both bond holders and industry commentators condemning the move as a cynical cost-cutting ploy. Consumer advocate Mark Taber of fixedincomeinvestments.org.uk believed the proposal could be illegal, dubbing it “the most outrageous abuse of private investors I have ever seen.”

Taber went on to lead the successful action against Lloyds; the judgment comes as the government prepares to sell off its remaining 19 per cent stake in the bank. Lloyds has already confirmed it will appeal the ruling, with a spokesperson saying the group was “disappointed” with the decision.

Lloyds argued that it had always highlighted the possibility that the ECNs could be redeemed prematurely – and claimed that the ECNs could now be withdrawn because they had not been counted as part of its capital cushion during stress tests conducted by the Bank of England last year.

However, the judge ruled that this did not qualify as a disqualification event, as the ECNs might count as capital in the future.

“I think Lloyds should take this decision on the chin,” concluded Taber.

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