Lloyds banks on strong demand for rights issue

Published on Monday 23 November 2009 21:20

DETAILS of Lloyds Banking group's record £13.5 billion rights issue will be unveiled today as the bank indicates it is expecting strong demand.

The new shares are expected to be offered to the bank's beleaguered shareholders at a 30-55 per cent discount to last night's closing price of 91.47p.

The final go-ahead for the rights issue will be decided by a shareholder vote at a specially-convened meeting in Birmingham on Thursday. Institutional shareholder support means the vote will be overwhelmingly in favour of the issue, although the event is likely to give the bank's 2.8 million private investors another platform to air their grievances at Lloyd's poor performance.

Alan Steel, of the independent financial adviser Alan Steel Asset Management, said the discounted shares would appeal to investors. "What does Warren Buffet do? He invests in businesses that are usually down on their luck. He said 'it doesn't matter if it is socks or stocks, I like getting a big discount when I buy them'.

"I would suspect Lloyds is in not too bad shape. If you can buy at such a huge discount and you have got a lot of patience, I don't think it would be a bad idea."

The government is taking up its rights as part of the issue, investing 5.7bn net of an underwriting fee, to keep its stake in Lloyds at 43 per cent.

The bank's call on the share discount was designed to come after testing investor response to its 9bn bond exchange. Yesterday Lloyds confirmed that it received offers of 12.5bn from investors for its non-US bond exchange, which had been "significantly oversubscribed".

The exchange is part of the 22.5bn capital raising to allow the bank to escape the government's asset protection scheme, set up in March to protect banks against further credit losses, but now seen as too expensive.

The new bonds are known either as enhanced capital notes or contingent convertible bonds – called "cocos" – a form of hybrid bond that converts to equity if the bank's core tier one capital falls below a certain level. Some have referred to cocos as "death spiral bonds".

Bond investor appetite for Lloyds' cocos is seen as a positive sign for buyers of the group's shares.

The share issue comes as more jobs have been axed by the bank. The Accord trade union said 700 jobs will go at Lloyds' offices in Aylesbury, Buckinghamshire. Lloyds will move 570 life, pensions and investments administration jobs, while Equitable Life has given notice that its contract with Lloyds for administrative services will come to an end in March 2011.

The work will transfer to Indian firm HCL, which will retain only 100 of the 340 employees who currently carry out the work.

The union said the combined decisions will result in more than 700 job losses in Aylesbury by the end of 2011.

The Unite union said more than 50,000 finance jobs have been lost in the past year, despite the tens of billions of pounds spent shoring up the industry.