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Lloyds bondholders turn to regulator as redemption looms

Holders of generous Lloyds bonds who are being forced to sell their investments are appealing to regulators as the deadline looms.

Lloyds bondholders turn to regulator as redemption looms

The Lloyds bondholders who will be forced to turn in their investments this month have made a last ditch attempt to get the City regulator to halt the sell-off.

Lloyds has announced it will redeem its enhanced capital notes (ECNs), which have been at the centre of an ongoing legal battle, on 9 February, meaning thousands of investors will lose out on valuable returns of as much as 11%.

The bank and bondholders have battled it out in the High Court and Court of Appeal, and last month Lloyds moved to block investors from challenging the sell-off in the Supreme Court.

The bank argued it ‘made a mistake’ in its contracts with investors, who purchased the bonds as part of the bank rescue plan at the height of the financial crisis.

With the redemption date announced, Mark Taber, a fixed income specialist who is helping the bondholders, has penned an open letter to the Financial Conduct Authority (FCA), the Prudential Regulation Authority (PRA), HM Treasury, Bank of England, and the Treasury Select Committee calling for them to step in.

He said the redemption ‘will have a devastating effect on the income of a large number of pensioners who hold ECNs, which were offered to over 123,000 consumers in the largest ever retail offer of its kind to enable Lloyds to withdraw from the government asset protection scheme’.

Taber notes that the bondholders were initially successful in the High Court but the decision was overturned in favour of Lloyds by the Court of Appeal despite there still being ‘significant doubt that early redemption at this time would be in accordance with the legal rights of consumers’.

The idea that Lloyds made a mistake in the drafting of its contracts with bondholders is criticised as ‘high improbable’ and therefore ‘the authorities are aware that it is probable that Lloyds is abusing the legal process for its own commercial advantage to the detriment of consumers’.

Regulator rapped

If the contract is incorrect, Taber said this brought into doubt the FCA’s role in protecting consumers.

‘The FCA failed to act in accordance with its statutory duty to enforce prospectus directives and rules to protect consumers who are investors in listed bonds and maintain market integrity,’ said Taber.

The letter goes on to cite the Human Rights Act section 6(1) – that states it is unlawful for a public authority to act in a way which is incompatible with a Convention right - which Taber states is in breach as consumers are not being protected.

‘I invite you to consider, as a matter of extreme urgency, whether the authorities' decision to allow Lloyds to redeem the ECNs, so expropriating the property of individuals and potentially increasing the cost to Lloyds due to unknown and complex compensation claims, at this time and the authorities' omission to intervene to protect the possessions of consumers are unlawful as the result of…the Human Rights Act 1998,’ he said.

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20 comments so far. Why not have your say?


Feb 01, 2016 at 17:00

Lloyds are a disgrace and appear to have maintained their arrogance despite having to go cap in hand to the public for a bail out in 2009. What the hell are the FCA up to in allowing the redemption? They haven't even waited for the court case to reach its conclusion - the Supreme Court are due to decide on leave to appeal within about a month.

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Garth Nicholson

Feb 01, 2016 at 17:11

The Regulator, the FCA, has proved to be useless in this very important case of consumer protection. Lloyds actually admitted in Court to a mistake in the wording of the Bond prospectus (which had been approved by the FCA's predecessor, the FSA). How on Earth in an normal view of Justice can you plead a mistake in Court in the wording of a contract - for this is what a Bond prospectus is - and then claim you want to reinterpret it to the disadvantage of the other party? Perhaps holders of Lloyds mortgages should re examine the terms of their agreement and reinterpret the clause where they agree to make re payments to Lloyds. Just a 'drafting infelicity' as Lloyds term it.

This is not Justice as we know it. Lloyds should be hung out to dry by the Suprememe Court and then subjected to a mis selling inquiry, but will that happen? Certainly not before the Lloyds Board bonuses have been collected and the recipients moved on to another cozy banking job.

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Feb 01, 2016 at 17:11

As Mark Garnier (Treasury Select Committee) put it “This is a clear example of a bank showing contempt for its smaller investors, and that does not ring true with a bank that is trying to clean up its act.”

Andrew Tyrie the TSC Chair was similarly disturbed by Lloyds Bank's actions.

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Spencer via mobile

Feb 01, 2016 at 17:21

If there was a mistake in the drafting ,surely the lawyers should take the rap.

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David Hatch via mobile

Feb 01, 2016 at 17:53

Are there no depths that Lloyds will sink to? Calling the bonds when the legal process hasn't been exhausted is shoddy. If Lloyds loses at the Supreme Court they will be unable to put Humpty Dumpty back together again. The pensioners will have been crushed, frightened and chucked out of their care homes. Too late to say sorry then ... even if Lloyds finally accepted how badly they're behaving.

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Dave Kempton

Feb 01, 2016 at 18:01

There is only one thing to consider here and that is what does the word 'Bond' mean. Once you acknowledge this and that therefore there is no grounds for Lloyds to argue there is nothing further to discuss. If the courts let Lloyds obviate their responsibility on the grounds that there was a mistake in the contract then that makes all contracts pointless.

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Paul Anderson

Feb 01, 2016 at 18:19

The silence of the Regulators could be explained away by them understanding the decision of the Court of Appeal allowing Lloyds to redeem, taking the view that a CDE had occurred and Lloyds correctly interpreting Contract Law.

Why fight a correct decision, it's wasting time and other peoples money. Who is going to compensate the bank for the extra years interest payments they had to make to get to the final decision?

GBP200,000,000 given to holders unfairly, money that should belong to shareholders.

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Cynical Investor2

Feb 01, 2016 at 18:19

If the Ruling is allowed to stand, the ramifications for all Contracts will create a Lawyer's Utopia.

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David Mackinnon

Feb 01, 2016 at 18:21

I'm beginning to feel as if I live in some sort of 'banana republic'. How can Lloyds make a 'mistake' in a contract? If I make a mistake when signing a contract I know it's me who'll pay. If this is not rectified how can anyone ever trust UK contract law again?

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Malcolm Stewart

Feb 01, 2016 at 18:30

I really think that the holders of these Lloyds special bonds are considered greedy, the truth is something else.

When the Uk economy got into troublein September 1992, (Black Wednesday) and we withdrew from the ERM, interest rates were put up to 15%.

This was the return that one then got for buying War Loan or similar Government bonds. And remember these bonds were undated, so anyone buying at this period and still holding these bonds still receive 15% annual interest. guaranteed by the UK government. yes still today.

In 2004 Halifax Building Society introduced PIBS. also paying forevever a high rate of interest , one at 13.375%.

Now we all know that Halifax was the backbone of the domestic savings of the nation, and we all lived and died on Halifax's reputation, which was second to none.

When the crash came to 2008/9 Halifax was rescued by the government who leaned on Lloyds to take them over, and even obtained a special consession from the ECC, something to do with the Monopoly situation, not that Lloyds at the time were backwards as they saw an advantage in increasing their domestic base.

The ECC then imposed on Lloyds a modatorium of dividends for Halifax PIBS of 2 years.

Lloyds very cynically took advantage of this situation by offering to replace PIBS with Enhanced Notes, paying a higher coupon, but now with a fixed maturity date. However they deliberately drafted the documemtation with the attention of getting out at an earlier date.and they were working on the dictum Caveat emptor "let the buyer be aware".

In fairness to Lloyds at the time they thought they were only dealing with professional investors, as they channeled their offer over a very short tiime frame and only through Crest. this means that you held your PIBS through a broker in electronic form

This meant that the bulk of the retail market were excluded as they held their investment in paper form (share certificates).

Interestingly all of the Halifax PIBS are still current, and after suffering the loss of 2 years interest they are still performing, paying their oriinal rates of interest, and at a very high capital value,, and as far as I know thet will continue.

THe real issue is the sheer hypocracy of Lloyds.

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Feb 01, 2016 at 19:00

Nice to see a reasonably accurate article on the subject.

Interesting that today the House of Commons debates a motion that " This house believes that the FCA is not fit for purpose .............". Clearly Lloyds bondholders are not the only people who see deficiencies.

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Malcolm Stewart

Feb 01, 2016 at 20:51

Sorry about the spelling.

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Feb 01, 2016 at 21:23

The FCA are playing political games here. Hint : Please start taking this issue seriously as you do not have powers to wash your hands of this.

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Neil Brereton

Feb 02, 2016 at 09:33

Its seems to be very much in the public interest that this case is taken to the supreme court and I hope that this happen.

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James Gerard

Feb 02, 2016 at 10:15

I find it unbelievable that Lloyds, only when challenged in court, explains its actions by saying that it made a mistake in a prospectus issued to tens of thousands of private investors. It then compulsorily withdraws their investments because the commercial tide has turn the contract to the favour of the investors. Could a mortage borrower or a company demand to close their loan with Lloyds if they found interest rates had turn against them? We all know the answer to that.

Who is protecting the interests of private investors in our country?

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Neal Morris

Feb 03, 2016 at 17:00

Lloyds never even proved they made a mistake, they simply said they had, for all we know they made it up simply to try to win the appeal courts favour - which they seem to have done. The courts never even took into consideration there are private investors who are being cheated, nor the fact that no one on any level spotted any errors during the 7 years since the prospectus was written, nor the fact an almost identical prospectus exists for another bank with similar shares, nor the fact that the entire bond issue would have be inequitable and would have failed had the terms been written in the way Lloyds are now claiming they should have been. The list goes on and on and on, you couldn't make some of this stuff up if you tried. All we need now is to discover senior execs and the CEO are all church goers on cocaine who hire rent boys and the story would be complete.

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Feb 03, 2016 at 19:54

I couldn't agree more NM. Why can't the regulators and courts see through this utter nonsense. This story has been made up by greedy bankers for short term gain. It's only a matter of time before truth comes out.

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Seasoned cynic

Feb 04, 2016 at 08:51

Letapt - I wish I could share your optimism but time is not on the side of the retail investors and even if the whole truth were to come out, it may not result in true justice.

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Feb 04, 2016 at 16:00

Malcolm Stewart wrote:

"In fairness to Lloyds at the time they thought they were only dealing with professional investors,...etc."

Malcolm, not quite so:

In an email dated 11 November 2009 Michael Oliver, LBG Director of Investor Relations wrote -

"We very much value the fact that we have one of the largest retail preference shareholder bases in the UK. That is why we have constructed what we believe to be the largest retail offer of its kind in this country. We believe we have come up with an offer that enables the vast majority to participate on terms which are favourable to them."

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simon corkswill

Feb 07, 2016 at 09:35

What about the income tax implications to holders? If Lloyds lose then will they be paying the tax bills ? Holders will want to be restored to position as if none of this had happened , other possibilities , say I was intending to move my and my wife's ECNs to ISA this year and now can't because of redemption how will they deal with that and various other scenarios that may arise ? I really hope they have opened a far bigger can of worms than they ever considered and that of course they lose .

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