LONDON Feb 25 Lloyds Banking Group has
been urged by a campaigner for retail investors not to be
"irresponsible and short-termist" over how it treats bondholders
who helped to rescue the bank in the financial crisis.
The British bank, which is 33 percent owned by UK taxpayers,
told investors this month that it could buy back at face value
the 7.5 billion pounds ($12.5 billion) of bonds it issued to
strengthen its capital in 2009 because new European rules mean
that they are now unlikely to count towards its capital buffers.
With the bonds trading at a premium to their issue price,
investors fear they could be short-changed by an enforced sale.
Mark Taber, who has previously led successful campaigns for
retail bondholders in Bank of Ireland and Co-operative
Bank, said in a letter to Lloyds on Tuesday that it "would be
irresponsible and short-termist" of the bank to call in the
enhanced capital notes (ECNs) on the basis that they no longer
count as qualifying capital for European banking stress tests
"If Lloyds considers there is an issue with the capital
status of the ECNs, then it should be engaging openly and
constructively with all stakeholders in order that a consensual
solution can be reached," the letter said.
With up to 123,000 retail investors holding the ECNs, Taber
told Reuters last week that there was mounting concern about
comments the bank made to analysts on Feb. 13. Bond prices fell
after the comments.
Banks can save annual interest costs by buying back
high-yielding bonds, leading many to take a harder line on the
issue. However, upsetting bondholders including hedge funds and
other big investors could prove damaging for future fundraising
and analysts said Lloyds is unlikely to offer the bare minimum.
Taber said that investors had not been made aware of the
risk that the bonds could be called in because of regulatory
His letter said the ECNs had been structured in extensive
consultation with the UK regulator to meet Lloyds' long-term
capital requirements. To disqualify them now because of a change
in the definition of capital "directly contradicts the
historical basis for the terms and the understanding on which
they were exchanged", he said.
Taber sent the letter to Charles King, Lloyds' head of
investor relations, who was on the Feb. 13 call, and sent copies
to senior UK regulators and politicians.
A spokesman for Lloyds said it maintains contact with a
range of stakeholders but does not comment on individual cases.