Charity claims Lloyds in threat to accept cut or lose cash altogether

Published on Thursday 3 December 2009 21:29

THE battle between Lloyds Banking Group and its charitable arm in Scotland escalated last night with claims the bank was threatening to terminate the cash- giving covenant between them.

Mary Craig, chief executive of the Lloyds TSB Foundation for Scotland, said the bank was "upping the ante" in the dispute over its plans to cut money given to the foundation amid the global banking crisis.

The indication the bank might be considering terminating the covenant emerged in an exchange of letters between Shane O'Riordain, group communication director for LBG, and Martin Sime, chief executive of the Scottish Council for Voluntary Organisations (SCVO).

In a letter dated 12 November, Mr O'Riordain wrote that he wanted to "provide some clarity" over recent issues.

"Much has been written about the terms of the covenant ensuring funds for Scotland 'in perpetuity'. This is not the case. The covenant is terminable on nine years' notice. The covenant, therefore, only has a nine-year value.

"The long-term value to the foundation of continuing the relationship with the group beyond nine years is very significant indeed. It is worth considerably more than the value they would receive were the covenants to be terminated at the end of the nine-year period. We do not, therefore, want to have to terminate the covenant."

Ms Craig said: "There can be no reading of such a move other than because the group is not getting its own way, (it is] forcing us to accept terms not in the best interests of the charities we support."

The bank wants to cut the foundation's annual income by half – resulting in a loss of 6 million a year. The foundation was offered an interim funding package, but in exchange had to agree to its income being reduced from 1 to 0.5 per cent of the bank's pre-tax profits and accept a banking director on its board.

Ms Craig said last night she had been told by Mr O'Riordain that the covenant was "under consideration". She added: "Lloyds Banking Group has indicated to us that it is considering whether to serve notice on Lloyds TSB Foundation for Scotland to terminate the historic covenant, effectively ending the 25 years funding relationship between the banking group and the foundation," she said.

Mr Sime said: "Any move to terminate the covenant would have a severe and detrimental impact on the image and standing of the banking group in Scotland."

A bank spokesman said: "Lloyds Banking Group continues to have constructive discussions with three of the four foundations."