InvestmentsFeb 10 2016

Campaigners blame FCA for Lloyds redeeming bonds

twitter-iconfacebook-iconlinkedin-iconmail-iconprint-icon
Search supported by
Campaigners blame FCA for Lloyds redeeming bonds

Campaigners have slammed the Financial Conduct Authority for not intervening to protect investors with high-interest bonds after issuer Lloyds Banking Group moved to redeem the bonds yesterday (9 February).

Thousands of investors who looked set to lose the bonds, known as enhanced capital notes (ECNs), were thrown a lifeline on Monday (8 February) after the Supreme Court gave them the chance to appeal against the bank’s decision to buy back the ECNs at face value and stop paying as much as 16 per cent a year in interest.

However the FCA decided not to intervene and Lloyds Banking Group redeemed the bonds anyway yesterday (9 February).

Mark Taber, who is leading the investors’ campaign, said he welcomed the extraordinarily quick decision by the court but added: “There will be a massive complaint over this to the FCA for its failure to intervene.”

Mr Taber said investors would be putting forward their best case on 21 March but the Lloyds’ move had made compensation more difficult: “With most people who hold the bonds in Sipps and Isas, we are not sure how everyone will be compensated.

“They may end up with a big tax bill. This causes nightmares over compensation.

“We are at a loss to know quite why the FCA allowed Lloyds to redeem these ahead of the hearing.”

An FCA spokesperson pointed out that last November, Antony Townsend, the Complaints Commissioner, ruled that the FCA’s decision not to intervene was within the range of decisions the regulator could reasonably take.

She added: “While the FCA is not a party to the legal action in this case, we have monitored the transaction closely and have been in contact with Lloyds Banking Group and the trustee throughout.

“Our view remains that it is for the courts to decide the legal effect of the clauses under dispute.

“Lloyds Banking Group has confirmed that it has mechanisms in place to compensate investors if the Supreme Court grants leave to appeal and ultimately decides in favour of the investors.”

The bank issued the bonds, known as enhanced capital notes (ECNs), to investors in 2009 to act as a cushion in case the bank’s capital fell below what was required.

ECNs are hybrid bonds which switch into shares if the bank’s capital ratio ever fell below 5 per cent, and aimed to help banks through the ‘stress tests’ set by the regulators.

However, changes to regulation meant that ECNs could no longer be included as part of the company’s capital buffer, and were therefore not taken into account during the Prudential Regulatory Authority’s stress test in 2014.

A spokeswoman from LBG said: “The redemption of the prioritised ECNs happened yesterday. Regarding compensation, we have stated that if the Supreme Court determines that a Capital Disqualification Event had not occurred the group would compensate fairly the holders for early redemption.”