From The Sunday Times -- November 8, 2009

Secret 165bn loan keeping Lloyds alive

LLOYDS BANKING GROUP is being kept afloat with 165 billion of loans and guarantees from the Bank of England and other central banks around the world, The Sunday Times can reveal.

The banks reliance on state funding, detailed in a document released last week in connection with a separate 21 billion fundraising, gives the first insight into the huge scale of aid extended to banks during the financial crisis.

The document says the bank is still heavily reliant on government funding. Lloyds also says it would face a materially higher refinancing risk if it was not available.

The scale of Lloyds dependency has surprised analysts, but they say it shows just how big a financial timebomb it has become. The support is nearly equal to the 175 billion of UK government borrowing to be raised this year, and almost as big as the Bank of Englands 200 billion quantitative easing programme.

The government has extended the money through two funding plans the Special Liquidity Scheme, which gives loans, and the Credit Guarantee Scheme, under which guarantees are given to allow banks to get commercial loans.

Royal Bank of Scotland is less exposed it has about 40 billion in state funds. It has cut its dependency on state funding by 69% since the peak of the crisis.

Lloyds inherited most of the government loans from HBOS after it agreed to acquire the bank in September 2008.

Banking sources have revealed that the Bank of Englands Special Liquidity Scheme was created in April 2008 with the express purpose of helping HBOS. The group was heavily exposed to mortgage lending, which dwarfed its retail deposits. When markets deteriorated and HBOS could not recycle its capital, the Bank stepped in.

The document shows Lloyds drew down further loans early this year. The bank said the loans should be seen in the context of its 1 trillion balance sheet and said all western banks received state help during the crisis. However, analysts say few continue to be helped on this scale.

The Bank of England will make record profits this year from fees and interest rates paid by the banks for emergency funding.

The Lloyds document also reveals the bank faces a 3.7 billion pension deficit. It is transferring 5 billion of assets to fill the hole.

This weekend the bank faces another potential threat to its fundraising plans. TCI, an activist hedge fund, has begun to orchestrate a potential investor rebellion over a 7.5 billion debt swap deal, part of the banks plans. Some investors continue to put pressure on Lloyds chief executive Eric Daniels to announce a succession plan as a condition for backing the rights issue.

RBS, meanwhile, faces another potential row over staff bonuses. The bank is offering cash advances to its bankers to by-pass new rules. Cut-price loans are being offered to staff allowing them to instantly release the value of bonuses being paid in shares. The loans would enable them to borrow against up to 25% of the total value of the bonus, at interest rates of 3.75%. The bank claimed the rate represented commercial terms, even though it is lower than the mortgage rates offered by RBS to customers.

The bank is also continuing its process of disposals, with first-round bids having been tendered for RBS Asset Management, which controls 30 billion of assets. Aberdeen Asset Management, Black Rock, Henderson, Schroders and Neuberger Berman have all tabled offers.

Morgan Stanley is advising RBS on the sale, which is estimated to be worth between 250 and 300m.

From The Sunday Times -- November 8, 2009

Take heart from bosses optimism about Britain

The chief executives of our large banks and retailers have ideal seats from which to watch the UK economy. The bankers see how stretched individuals are on mortgage payments, how much they are putting on credit cards and into savings accounts. They have a similar view on the financial strength of their corporate customers, both big and small. Retailers can see every day what their customers are doing.

So when three chief executives from these sectors call an end to the recession even though it has not officially ended we should listen.

Sir Stuart Rose at Marks & Spencer said as much last week and even Stephen Hester, head of Royal Bank of Scotland and the most bearish of all high-street bankers, shares a similar view. The world today is a more predictable place, he said. Every country is pulling out of recession. The UK has already, but it is not yet in the data. Eric Daniels of Lloyds said he was more optimistic than some on the short-term prospects for the UK.

But these upbeat remarks need to be qualified. If all agree the recovery is taking place or is just round the corner the bigger concern is that further growth will be muted. The trio are united in believing that Britain faces a long road to recovery. Daniels said you cannot have an economy with twin deficits fiscal (shortage of tax receipts) and trade (balance of payments) and that there are huge questions about how our economy should evolve. Or, as Daniels put it: What is the point of excellence in the UK?

Hester remains cautious about how good the recovery will be. It is a sentiment shared by many of our top industrialists, particularly those whose earnings are dependent on Britain.

You only have to look at last weeks results from RBS and Lloyds to see the troubles that are still stored up.

RBS admitted it has another 40 billion of provisions it could make in the UK in the next two to three years. That comes from exposure to assests and loans to businesses, property and mortgage lending that are no longer worth their original value. That number on top of the huge provisions made this year by RBS may not be as bad as once feared, but it is still huge.

In addition to this, the two banks are going to run down or sell non-core assets and loans over the next four to five years of some 400 billion.

Lloyds intends to sell assets worth 200 billion accounting for 20% of its total balance sheet assets. And RBS intends to wind down 240 billion of assets that have been put in the Government Asset Protection Scheme.

The recovery may be under way, but the scars inflicted by the debt-fuelled boom will take a long time to heal and the ripple effect round the wider economy will be felt for some years to come. We have to return to a business relationship in which banks serve industry, not exploit it as an opportunity for more financial engineering.

The encouraging news is that we are nearly out of the worst but, as we point out on the opposite page, the government and the Bank of England have made a huge, long bet on the UK economy. If there is a double dip, that gamble will make this countrys finances very precarious indeed.

Sparks fly at Barclays

So farewell then Frits Seegers, the Dutchman who shook up Barclays international retail operation. Seegers packed his bags last week after being stripped of his other role running the commercial lending division. This was moved to Bob Diamond, the banks all-powerful head of Barclays Capital.

Those on the inside had seen it coming. Seegers was a human catherine wheel, throwing off random sparks every second. Some found it hard to work for him and a number of big investors had concerns over the rapid expansion of the retail business into Africa, India and Pakistan, among other areas.

It wasnt the flag-planting they didnt like it was the returns that would ultimately be delivered. The show was moving too quickly for anyone to have time to assess the profitability.

The speed with which John Varley, Barclays chief executive, moved yet again underlines how ruthless he can be when it comes to protecting the banks commercial interests.

Just two months ago, most of the top brass at Barclays cited Seegers as one of its stars. Last week the story changed. The new line is that Seegers departure enables the bank to promote the next generation of talent. It is a tough business, but a 4m pay-off undoubtedly softened the blow. And the decision to integrate commercial lending into investment banking is the right one.

ITVs City X Factor

Critics who struggle to put their finger on the failings of the ITV board often point to the number of bankers who have sat in the broadcasters boardroom over the years.

In the Charles Allen era there used to be three banking knights: Sir Peter Burt, Sir Brian Pitman and Sir James Crosby. None of them is the type to sit down to watch two hours of the X Factor on a Saturday night.

Only Crosby remains today, and he will leave almost as soon as he has identified ITVs next chairman. It is striking that several of the candidates who will be interviewed over the next two weeks are bankers too.

That neednt be a bad thing. One name in the frame, Merrill Lynch veteran Bob Wigley, has proved to be a safe pair of hands in marshalling lenders to support a 3.8 billion debt restructuring at Yell, the classified directories group, where he is chairman. The company is also preparing to announce a 500m rights issue with its interim results on Tuesday.

John Nelson, who made his name at Credit Suisse and now chairs the Hammerson property group, also has strong credentials. Anthony Fry, once of Lehman Brothers, is a longer shot.

Investment bankers names are still mud as they prepare to pick up hefty bonuses after Christmas. How interesting, then, that so many are in the long-suffering headhunters sights to fill the ITV job. Perhaps it is meant to be a form of punishment for the profession but with advertising and confidence coming back to television, probably not.

A young mans Game?

A number of big investors in Game, the video retailer, are getting concerned whether Peter Lewis, the chairman, is the right man to take the group forward to the next stage of its growth.

Lewis, 68, has been with the company for 14 years, and in that time has seen the group grow to its present market value of 538m. Some investors are keen for a younger chairman to take his place, more in tune with the groups target audience and one who can put a spark back into the share price.

SFO misses target A FEW weeks ago we wrote that the Serious Fraud Office had set an end-of-October deadline to pass papers to the attorney-general on its long-running fraud investigation into BAE Systems. Has it met the target? Apparently not. The papers are now with Timothy Langdale QC who has been working on the case for years to decide whether to send them off. BAE will have to wait a bit longer for its day of reckoning.

Banks in the US, Asia and many in Europe reported better than expected results.
Consider RBS and HSBC, the two competitors. Both have done well.

I expect LLoy do the same.

89.5p +4.3p

Lloyds increasing maximum ECN amount

Lloyds Bank is increasing the maximum enhanced capital notes new issue amount under the non US exchange offer from 5.5bn to 7.0bn.

The bank announced two exchange offers on 3 November.

These related to certain existing securities for enhanced capital notes guaranteed by Lloyds or Lloyds TSB Bank plc, or, in the case of the non US exchange offer, an exchange consideration amount to be satisfied in new shares and/or cash and/or additional ECNs.

It said: "As a result of high levels of investor interest following the 3 November 2009 announcement, Lloyds has decided if required, to utilise the maximum flexibility incorporated in the exchange offers proposals to satisfy potential investor demand by increasing the maximum ECN new issue amount under the non US exchange offer from 5.5bn to 7.0bn.

"In the event that take-up under the non US exchange offer does not reach 7.0bn, Lloyds will consider increasing the maximum ECN new issue amount in the US exchange offer in accordance with its terms."

Rush to swap debt for equity prompts Lloyds to consider raising 1.5bn more

Darling says banks must reform bonus culture - report

Fri 13 Nov, 2009 09:00
LONDON (Reuters) - Banks have still failed to grasp the need to reform their bonus culture, but Britain is unwilling to legislate to force them to take action, Chancellor Alistair Darling said in a newspaper interview on Friday.

Speaking to the Wall Street Journal's European edition, Darling said many banking executives appear to have forgotten that public money bailed out large parts of their industry.

"The mentality in the boardroom seems to ignore the fact everybody else in the country has helped them out," Darling was quoted as saying. "There are far too many people in the banking world who haven't caught the change in sentiment. There has to be a change in culture."


The question of bankers' bonuses has triggered a political and public outcry in Britain and around the world and prompted calls for tougher curbs on their pay packages.

Despite the state aid that rescued parts of the banking industry, Darling said some bank bosses had sought a return to pre-crisis bonus pools.

"The first instincts of too many people in these institutions is to say 'what can we pay out', rather than 'what can we pay in'," Darling said.

However, he again ruled out passing new laws to limit bonuses and said taking such a move unilaterally would harm the British economy.

"I do not want to disadvantage Britain," Darling added.

Britain last week ploughed another 30 billion pounds into the country's banks as part of a major restructuring forced by European Union competition rules.

That followed a huge government bailout last year which saw Britain take stakes in its major banks to prevent a financial collapse.

Darling said former shareholders of Britain's failed banks must shoulder part of the blame.

"They didn't take their stewardship seriously," he said. "There are huge questions to be asked about the role of shareholders in these businesses."

On the global economy, Darling said there was "still a lot of uncertainty around" and more risks to be negotiated, such as rising unemployment in the United States.

Lloyds takes 600m hit on Admiral pubs

Lloyds Banking Group has been forced to swallow a 600m debt-for-equity swap at Admiral Taverns, the pubs group, in the latest fallout from the banking groups ill-fated merger last year with rival HBOS.

The deal, which could come this week in the form of a pre-pack administration, will force Lloyds to take control of Admiral, one of Britains largest pub groups, after it fell behind on repayment of more than 1 billion in debts.

LLOYDS TO UNVEIL CUT-PRICE ISSUE

LLOYDS Banking Group is thought to be prepared to sell new shares to investors at a cut price 50p a share in order to ensure its UK record 13.5 billion rights issue does not flop.

Good to hear that. The expected issue price has risen from 35p to 55p a share and we have lots of time until 24th when the price will be decided.

We should also consider that the asset value of companies including Lloyds is increasing every day. For instance, Lloyds holds 12% of WKP risen over 10% in two days.

9m shares traded at 89.85 at the close on Friday.

the pair of you are not being exact.
regards
jkd

jkd, don't worry about it. Just make sure that you have cash available at the specified date to take up the rights if you want. That's the crucial issue, imo. All the rest is just speculation.
Interesting to see that many of the big BARC holders were allegedly selling out to have cash available for the LLOY issue. Not long to go now.

A late surge at 4pm most likely from the US, but only finished 1p UP

The negative comment at the weekend press keep the shares down on the morning, despite the FTSE rising strongly.

I think it should hit 87p again shortly. May bounce, but probably won't. Not sure what the uptake will be, but I sold my holding a while ago and can wait.

So you won't have any Rights allocation Fred? The last lot were certainly worth having, which doesn't necessarily mean this lot will be, but am reasonably optimistic.

Damian Reece -- Published: 12:04PM GMT 16 Nov 2009

Bankers and traders will kick and scream at the idea of individual contracts being subject to state scrutiny, although I'm confident most will find their way through the manifold loopholes which such remuneration law generally contains. Their employers likewise will join the cacophony of protest at what look fairly unconstitutional proposals.

There will be plenty of noise from another constituency too, but this time it will be the sound of popping Champagne corks. From what we know, the Bill looks like a massive work creation scheme for the City's law firms, whose remuneration, it seems, is not affected by the proposals.

We can expect a "bonus transfer" to a degree, from bankers to those lawyers employed to protect their incomes. For the economy as a whole, lawyers will take up the slack so estate agents and car dealers can keep ticking over. Phew. So far as lawyers are capable of being brash (most are too sensible to indulge in ostentatious displays of wealth) we should at least expect some loosening of the top button after this week's Queen's Speech.

No, the group who have most to lose but who will fail to make their justifiable case heard are shareholders, particular the big institutional shareholders who manage our savings and pensions.

With its suite of banking reforms, including pay, the Government is effectively wresting a huge amount of ownership control from shareholders and taking it for itself - without compensation.

Banks, especially in the UK, are becoming answerable primarily to the state for their actions, with shareholders fast becoming a poor second.

To some extent this is fair. Without the taxpayer standing behind all banks, shareholders would have faced complete wipe out. As it is they still have an economic interest in a sector beginning to revive. They have seen huge amounts of their value wiped out - certainly at Lloyds Banking Group and Royal Bank of Scotland - but such zombies have at least been given the chance to live again.

Anyway, much of this value destruction was down to the status of "absentee landlord" which most institutions adopted in the run up to Northern Rock and the ensuing crisis.

But this justification for state intervention only goes so far.

The entire economy benefited from the emergency action instigated by Government. It wasn't just the denizens of the Square Mile, Canary Wharf and Mayfair who contributed to the crisis.

Many other groups were culpable. Many businesses took excessive risks. Consumers were irresponsible as were politicians and regulators.

Yet no other industry is being targeted with specific laws, even though management allowed terrific risks to be taken and, in many cases, lost.

That's because it is not deemed appropriate for the state to intervene. It's for shareholders to decide if management is doing its job properly - if not then shareholders have the power to act, to terminate employment subject to contract.

Banks, it is argued, are different and require specific laws applicable to them because of the risks they pose to the system as a whole. Tougher rules on banks' capital requirements and liquidity are therefore being introduced internationally.

In the UK, banks will have to disclose how they can be wound up in emergency and retail banking separated from investment banking without the former being infected by the latter.

These are all reasonably sensible. But individual terms of employment were not to blame for the credit crisis - that was caused by a toxic confluence of behaviour encouraged by the easy availability of cheap money - a situation blessed by regulators and law makers the world over.

Laws that allow the state to nullify contracts already signed between two private parties are bad laws.

Regulators will ultimately have to rely on some highly subjective and debatable opinions as to what constitutes remuneration that threatens the stability of the financial system as a whole.

That's why the Financial Services Bill is a lawyers' charter.

But more fundamentally we cannot allow the state to use this crisis to limit our freedoms further.

Bankers may not be the most edifying bunch to defend but there are important principles at stake. It's up to shareholders to stand up for their ownership rights and not allow contract law to be so brazenly usurped by the state.

But these days they seem more interested in box-ticking corporate governance measures. The sort of thing that last week saw a bunch of them getting in an entirely mistaken lather about the non-executive roles of Sir Philip Hampton, chairman of the Royal Bank of Scotland.

Sadly, shareholders seem incapable of organising themselves into an effective voice or being able to adopt effective strategies. Many of them are the sort of blue chip organisations that the Government is wholly reliant on when it comes to the functioning of the gilts market, for instance.

This is a market without which the Government's runaway deficit would be impossible to fund. Institutions are not without leverage. They should start to use it before it's too late.

Harry,

I haven't held on for the rights offer and sold what I held a little while ago.

I find the Banks accounts and valuations to complex for me to understand and my previous holds were based on comment, simple understanding of basic fundamentals and the charts.

But in the present market turmoil, I feel that the share price may drop back to rights price if not below it.

If I was to buy, I would prefer to see the prices after the offer and buy accordingly.

I may have missed 5-10% profit, but happy buy on a uptrending share price.

Good luck if you hold.

I would think in 2years time it will have returned a decent overall profit.

RNS chairman Sir Win Bischoff buys 250,000 shares @ 89p.

He can afford to!
8-)

They are moving well ahead now, they have reached 92.50p a few minutes ago, up 2p while the market is down
and the rest of the banks also, though RBS wants to follow LLOY


On 16th November 2009, 250,000 ordinary shares of 25p each in Lloyds Banking
Group were purchased by Chase Nominees Limited on Sir Winfried Bischoff's behalf
at 89.691p per share.

just tooo much money around. Revaluation (assets and mortgage market) will move it to ... up