Lloyds plans £4bn share placing

Lloyds plans £4bn share placing
By Lina Saigol, George Parker and Peter Thal Larsen
Copyright The Financial Times Limited 2009
Published: May 17 2009 12:50 | Last updated: May 18 2009 14:02
http://www.ft.com/cms/s/0/0a47aef4-42cf-11de-b793-00144feabdc0.html


Shares in Lloyds Banking Group jumped in opening trade on Monday after the bank announced over the weekend that Sir Victor Blank would step down as chairman before June 2010, in what could be the first move to restoring the bank’s credibility among shareholders after its much-criticised takeover of HBOS.

The bank also announced on Monday that it would this week launch an equity placing to raise money to redeem the £4bn in preference shares in the bank that have been held by the government since it decided to insure £258bn of Lloyds assets.

Sir Victor decided to retire early in the face of a potential shareholder revolt against Lloyds management at next month’s annual meeting and a lack of public support from UK Financial Investments, the body that runs the taxpayer’s 43 per cent stake in the bank.

Although Sir Victor is close to Gordon Brown, the prime minister wants to maximise investor confidence in Lloyds’ management, as UKFI considers selling some or all of the government’s stake within the next year.

Eric Daniels, the Lloyds chief executive who admitted there was not enough time to carry out normal due diligence before the HBOS merger, wins some breathing space for now but could be in jeopardy when a new chairman is appointed.

One person close to the situation insisted Mr Daniels would stay for the time being, but conceded: “That could change when a new chairman comes in.”

Early speculation on potential successors to Sir Victor include two other Labour favourites: Sir Win Bischoff, the former Citigroup chairman who jointly chaired a Treasury review on the City’s future; and Mervyn Davies, the former Standard Chartered chairman, who now sits in the Lords as a trade minister.

Pressure for Sir Victor to stand down had been growing after it emerged that most of Lloyds’ bad debt charges stemmed from poor lending decisions made by HBOS.

This month, Lloyds said it expected bad debt charges on corporate loans to rise 50 per cent in 2009. Sir Victor on Sunday stood by the deal, saying it remained – in the medium term – “a unique value-enhancing opportunity”.

After Sir Victor’s announcement, Lloyds said the board was “unanimous in wanting Sir Victor Blank to seek re-election as chairman for another three years”. The bank appointed Lord Leitch as deputy chairman, with immediate effect.

UKFI also confirmed its support for Sir Victor’s re-election, praising his “unstinting” efforts to make the merger a success.

Mr Brown had hoped Sir Victor and Mr Daniels would lead Lloyds back to health. In March government officials hailed the ability of the “conservative team” running the bank and last week officials said Sir Victor still retained ministers’ confidence.

Mr Brown’s spokesman said: “The prime minister is grateful for Victor Blank’s contribution and for agreeing to stay on to oversee the early part of integration of Lloyds and HBOS and his succession.”

The Lloyds/HBOS deal saved the taxpayer from having to intervene immediately to save HBOS.

Under the terms of the share placing, existing shareholders will be able to subscribe 0.6213 new shares for every share they currently hold. The new shares will be priced at 38.43p, a 57 per cent discount to Friday’s closing price.

Any shares not taken up during the placing – a so-called rump placing – will subsequently be sold on the open market and the proceeds from that sale will be distributed to any shareholders that did not take place in the original placing.

Lloyds has 2.8m retail investors, the largest base of small shareholders in the UK.

The shareholder vote on both the placing and preference share redemption will take place in early June.

Shares in Lloyds were 5.2 per cent higher at 93.8p in early afternoon trading.

Additional reporting by John O’Doherty