17th Jun 2016 07:42
LONDON (Alliance News) - Lloyds Banking Group PLC on Thursday won the backing of the UK Supreme Court to redeem GBP3.3 billion of costly bonds, in a decision that could save the bank up to GBP1.0 billion in interest payments.
The Supreme Court held that a "capital disqualification event" took place, with the enhanced capital notes - otherwise known as contingent convertible securities, or CoCos - issued in December 2009 no longer counting towards Lloyds' regulatory capital position.
The enhanced capital notes, which were designed to convert into equity in the event Lloyds' capital strength fell below a specific threshold, were not taken into account after changes were made to capital requirements for banks in June 2013.
The notes carried high interest rates of over 10% per annum, a boon to savers holding the bonds amid the low-interest rate environment set by central banks in the wake of the financial crisis of 2008-09.
Lloyds had issued GBP8.3 billion of the notes in the wake of the crisis. Between March and April 2014, Lloyds exchanged GBP5 billion of the notes for financial instruments that qualified as regulatory capital under the new rules.
In December 2014, Lloyds said the notes had not been taken into account in the Bank of England's stress test of the UK banking system, claiming a capital disqualification event had taken place, clearing the way for Lloyds to redeem the GBP3.3 billion of notes outstanding.
BNY Mellon Corporate Trustee Services Ltd, trustee for the holders of the notes, challenged Lloyds, and won, but the bank appealed and was backed by the Court of Appeal. BNY Mellon then appealed to the Supreme Court.
On Thursday, the Supreme Court dismissed BNY Mellon's appeal by a majority of three against two.
"The group has sought to balance the interests of all stakeholders including our 2.6 million shareholders, as it takes steps to meet the requirements of the changing regulatory landscape and manage its capital requirements efficiently," a Lloyds spokesperson said on Thursday.
By Samuel Agini; [email protected]; @samuelagini
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