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Lloyds TSB investors could see dividends paid next year
Nick Goodway3 Nov 2008
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Shareholders in Lloyds TSB and HBOS may be paid dividends far more quickly than they expected, it emerged today, as final details of the £12 billion takeover were revealed.
Lloyds chairman Sir Victor Blank injected the hope that the new bigger bank might be able to pay off part of the Government debt and so restart paying the dividends far more quickly that the City had originally thought.
He said this could now happen as early as next year if the bank can reach a deal with the Government and the Financial Services Authority.
When the original Government bail-out for the two banks and Royal Bank of Scotland was announced in the middle of last month it was assumed that the banks would not be allowed to pay cash dividends for as long as the Government held preference shares in them.
Those preference shares which pay 12% interest originally had a minimum life of five years. The enlarged bank will have £4 billion of preference shares issued to the Government.
But today Lloyds said the Treasury “had indicated its encouragement that the preference shares be repurchased as soon as practicable”. It even set a price of 101% of the issue price for a repurchase in the next six months.
Lloyds chief executive Eric Daniels said he could foresee “various routes” to repaying the preference shares. These included paying them back through “other investors”, likely to be code for bringing in cash from sovereign wealth funds like those in the Middle East. He also hinted at asset sales, saying that “managing the balance sheet” was another way of paying back the government's stake.
Lloyds added that the Government preference shares could be repurchased “using replacement Tier One capital, retained earnings, the proceeds of disposals, gross reductions in risk-weighted assets or as otherwise permitted by the Financial Services Authority.”
The ban on the bailed-out banks paying dividends was part of the Government's demand in return for its capital. But it came as a major blow to Lloyds shareholders and particularly to HBOS's 2.1 million small shareholders who were given shares when Halifax came to the stock market just over 10 years ago.
Lloyds also spelled out just how imperative and urgent it is that the takeover of battered rival HBOS and the Government injection of £17 billion into the merged banks goes ahead.
It revealed that there could be up to another £10 billion of writedowns or losses at HBOS once the takeover goes through. It also said that the FSA would demand that it raise £7 billion in new capital if the takeover does not go through rather than the £5.5 billion it is raising with the deal. Lloyds increased the amount it expects to save through the takeover from £1 billion to at least £1.5 billion, although most analysts reckon it can save £2 billion.
Blank told Lloyds shareholders: “The acquisition of HBOS represents a compelling opportunity to accelerate Lloyds TSB's strategy and create the UK's leading financial services group.”
Terms of the takeover deal are an all-share offer of 0.605 Lloyds shares for every one HBOS share.
Reader views (5)
I am still trying to find out whether dividends are going to be paid on the various existing preference shares; does anyone know?
- Ian Harris, Chichester UK, 21/03/2009 21:03
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The acquisition document clearly states that the "New Preference shares" can only be redeeemed "with effect from the date five years and one day after their issue" and "no dividend may be paid on the Lloyds TSB shares while any of the Enlarged Group HMT Preference Shares are outstanding" So how can Lloyds chairman say that it is his "clear intention to achieve the repurchase of the Enlarged Group HMT Preference Shares during 2009 so as to enable it to resume the payment of dividends" I asked this question of Eric Daniels the Chief Executive and have not received an answer. Can we trust this government to say it can be done. Don't hold your breath. Meanwhile the ordinary shareholders will suffer. With the connivance of the government which waived competition laws, Lloyds helped the government out of a spot and all this government has done is to demand obscene interest rates on the Pref shares and not allow ordinary cash dividends on the ordinary shares for 5 years. Lloyds should go back to the government and say that if it insists on these rigid controls then it will back out of the merger with HBOS and if further capital is required then go elsewhere as Barclays have done. Lloyds may have been considered pedestrian by the market but it was soundly based and did not enter into ludicrous lending arrangements as some of the others have done.
- John Holt (Retired Senior Manager With Lloyds, Farnham England, 06/11/2008 21:41
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As a former employee of Lloyds TSB I think it will
be quite disgrateful if normal payments of dividends
to their shareholders (me included) is stopped, even
for one year.
- John Lawrance, Honitin,Devon, UK, 04/11/2008 10:47
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I strongly object to the deferment of my Lloyds TSB dividend. I will vote against the merger. I don't trust the bank 'fat cats', and I don't trust the Government.
- Douglas, Bristol, 03/11/2008 15:57
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BANK rupt.
Since when do companies with billion pound losses carry on trading? Why does the government want banks to carry on lending so badly when peopel cannot repay or service their existing debts...the bubble is bursting, let it burst properly and then things can recover. propping up and nationalising bad businesses is a recipe for disaster. By all means guarantee everyone's savings but dont go further and allow banks in trouble to carry on in business and paying their own crazy salaries and bonuses and expect the taxpayer to foot the bill. It wreaks of conspiracy to me and Joe Public will have to foot the bill.
- Krista, Geneva, Switzerland, 03/11/2008 15:19
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