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Lloyds preference shares rally as bank breaks silence

Lloyds says it has 'no plans' to cancel irredeemable preference shares, as investments come under scrutiny following Aviva's aborted threat.

 
Lloyds preference shares rally as bank breaks silence
 

Lloyds preference shares have rallied after the bank said it had 'no plans' to cancel them following Aviva's controversial attempt, which the insurer was forced to reverse following a backlash.

Lloyds has two series of irredeemable preference shares, with a combined market value of over £580 million. 

Both jumped around 3% after Lloyds chief financial officer George Culmer yesterday broke the bank's silence on the investments, which have been hit by the fallout from Aviva's move.

'Absolutely no discussion on these and absolutely no plans to cancel these irredeemable preference shares through a reduction in capital,' he said, according to reports.

But even with yesterday's fillip, the shares remain down on the levels they were trading at before Aviva shocked the small preference share market with its threat last month.

Both Lloyds irredeemable preference shares have lost more than 8% of their value since the turn of the year.

Campaigner Mark Taber, who has placed pressure on the bank over its preference shares following Aviva's move, said the bank had not gone far enough.

'They have not really said much at all,' he said. 'They have not said anything about the future, or given any commitment.'

The small band of UK preference share issuers are expected to provide clarification over the coming weeks, after Financial Conduct Authority chief executive Andrew Bailey wrote to chief executives urging them to make clear where investors stood.

Preference shares have been prized by investors for the healthy income they provide. Lloyds preference shares carry a fixed coupon of 9.25% and 9.75%, with that income meaning they have traded well above their 'par' or issue price.

But yields on the investments, which move in the opposite direction to their prices, have crept up, reaching around 5.7% in the case of the two Lloyds instruments. Investors have feared that other preference share issuers could seek to follow Aviva's attempt to cancel the shares, despite their 'irredeemable' status.

7 comments so far. Why not have your say?

halfinchnut

Apr 26, 2018 at 14:13

--------Campaigner Mark Taber, who has placed pressure on the bank over its preference shares following Aviva's move, said the bank had not gone far enough.

'They have not really said much at all,' he said. 'They have not said anything about the future, or given any commitment.'------

As a shareholder, I would be livid if they gave any commitment on the prefs other than, we will continue to look at the financial strength of the company and make comment as and when appropriate.

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PaulSh

Apr 26, 2018 at 15:09

@halfinchnut, so if it were in the best interests of the company, would you find it entirely reasonable to have your Lloyds ordinary shares cancelled at their par value of 10p each? No, I didn't think so.

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halfinchnut

Apr 26, 2018 at 16:56

If it was legal and within the terms of a prospectus, I wouldn't have an argument.

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gadgetmind2

Apr 26, 2018 at 18:04

If the company hits financial trouble, then a capital restructuring is all well and good. But the preference shares are senior to ordinaries (but below bonds) so let's make sure haircuts are done in the correct order.

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halfinchnut

Apr 26, 2018 at 18:28

"If the company hits financial trouble, then a capital restructuring is all well and good. But the preference shares are senior to ordinaries (but below bonds) so let's make sure haircuts are done in the correct order."

What's the order of returning money to investors when a company is awash with cash?

Reduce debt?

Give it to shareholders as dividends?

Buy other companies?

Reduce Capital?

Keep hold of it?

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Nicholas Blake

Apr 26, 2018 at 18:31

gadgetmind intimates a good point, which many pref holders miss. They get a preferential right to capital so the ords can't take capital out and pervert the priority. However, that priority only relates to the capital injected. The upside is all for the account of the ords.

If it were proposed to return the ords 9p of par and say £1 of share premium, with them retaining the residual 1p shares, and the prefs got nowt, I can well imagine the pref holders screeches of 'foul'!

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Robroy

Apr 26, 2018 at 19:32

Why oh why have the ordinary shares not risen ,on all the good fundamentals ,paying dividends,but the shares still stick below 70 p,the shares are one of the most traded every day,what’s going on..??

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