Shareholders give Lloyds both barrels

Fiona Bond
26.11.09 17:17

Top executives of Lloyds Banking Group (LLOY) were given an uncomfortable afternoon by a large turnout of angry shareholders in Birmingham on Thursday.

Although they voted 99% in favour of the group's record �13.5 billion rights issue - in line with expectations - both the chairman and chief executive were grilled repeatedly from the floor of Hall 12 at the NEC.

Lloyds, which currently has more shareholders than any other company as a result of its takeover of HBOS, called on its shareholders to purchase 1.34 new shares for each existing share they own at a price of 37p.

In total, the part-nationalised bank is tapping investors for �22.5 billion - the majority from shareholders - into the bank to extricate itself from the government-run Asset Protection Scheme (GAPS) and boost its balance sheet following its ill-starred takeover of HBOS last year.

Chairman Sir Win Bischoff, hailed the rights issue as "significant change for Lloyds" and said it would benefit shareholders in the long-term.

He told the general meeting: "The economic environment has stabilised. Our cost synergies are ahead of forecasts and based on our trading activity to date we are confident we can improve our position in 2010-2011. We now believe we can exist with GAPS. I believe the rights issue is a more attractive method than GAPS."

With almost Churchillian vigour, Bischoff told the shareholders: "Let us shape our own destiny."

However, shareholders furious over the revelation that HBOS received a �25.4 billion emergency funding injection from the Bank of England gave Bischoff and chief executive Eric Daniels both barrels.

Private shareholder Brian Peer from Durham blasted: "The government has taken advantage of the situation under the guise of helping banks. We should have been informed at the time of how much money would be required to bail out HBOS."

Peer's comments echoed around the meeting, with rumbles of discontent filling the cavernous hall, as various shareholders vented forth at the lack of disclosure. They openly questioned Lloyds' willingness to take part in the transaction to the detriment of its shareholders.

Lloyds divulged HBOS was receiving aid at the time, but failed to disclose the sum until this week.

The bank stood by its decision to acquire HBOS and maintained it carried out thorough due diligence before entering into the transaction, although it did concede that it was somewhat bound by red tape regarding privacy laws.

Valiantly, group chief executive Eric Daniels dampened the collective ire: "Over time, the takeover will bring great value to the group and we have managed to gain footing in areas in which we did not hold much representation."

However, the banking group hopes that today's result will pave the way for a stronger bank in the future and said its aim was to become a "fully-private, dividend-paying, commercially successful group", although he declined to pin down an exact date.

The company is legally bound to refrain from paying dividends until January 2012.

Today's favourable vote follows strong demand from institutional investors for its plans to swap existing bonds and preference shares for a new breed of hybrid securities known as CoCos. The bank originally targeted �7.5 billion but later increased the figure to �9 billion after being over-subscribed.

Shareholders give Lloyds both barrels

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