View the article online at http://citywire.co.uk/money/article/a877362
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.
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’.
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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