|Bid||1.7400 x 21500|
|Ask||1.8500 x 301500|
|Day's Range||1.7400 - 1.7800|
|52 Week Range||1.2700 - 3.5800|
|Beta (5Y Monthly)||0.72|
|PE Ratio (TTM)||5.83|
|Forward Dividend & Yield||N/A (N/A)|
|Ex-Dividend Date||Apr 16, 2020|
|1y Target Est||1.27|
(Bloomberg Opinion) -- The Covid-19 pandemic is even starting to affect the highly specialized world of bank capital.Lloyds Banking Group Plc, a large British lender, has just become the third European bank this year to do what was once unthinkable and decline to redeem an outstanding “CoCo” bond at its first call date. This form of hybrid debt — also known as additional tier 1 (or AT1) regulatory capital — is especially risky because the investor bears the losses if the bank fails, and it usually pays a generous interest rate.Because of their special status, there had always been a tacit understanding — though not a legal obligation — that investors would be able to cash in the bonds at the first redemption date, if they so chose, at least with European CoCos. But that tradition looks to be well and truly over among the stronger banks.Lloyds cited “extraordinary market challenges presented by Covid-19” as the reason to extend its own AT1s. With its dividend payments to equity holders suspended currently at the behest of the U.K. financial regulator, because of the coronavirus crisis, it would have looked rum indeed if the bank had cut its equity capital for the benefit of a small group of bondholders. This select bunch ought to have known the risk.The financial savings for Lloyds are just as relevant. By retaining the 6.375% 750 million-euro ($824 million) CoCo, it will switch to paying a floating coupon just above 5%. If it had redeemed the AT1 and issued a replacement bond, it would have had to offer a higher coupon to reflect the current market, probably one above 7%.Lloyds has a solid Tier 1 capital base of 16.9%, so in normal times it would have been expected to keep its bond investors happy. But regulatory pressure and the increase in yields on risky debt during the current crisis has forced even the better capitalized banks to prioritize their financing costs.Spain’s Banco Santander SA set the precedent last year of a blue-chip lender not redeeming its AT1 debt out of pure economic self-interest. That’s standard practice in the U.S. market, but Santander’s action caused a storm here in Europe. Germany’s Deutsche Bank AG and Aareal Bank AG have also skipped calls this year.This Americanization of the European CoCo market looks like a trend. ABN Amro Bank NV and Royal Bank of Scotland Group Plc both have AT1 bonds with calls due this summer, and Barclays Plc is due later in the year. They may follow the Lloyds example and retain cheap AT1 capital raised at lower yields.Banks have benefited hugely from AT1 issues as regulators count it as permanent equity (although it was almost always redeemed), meaning it counts toward capital buffers. And the cost is much lower for the issuer than true perpetual debt. Investors have been happy to play along as the yields far exceed those on bank debt with legally enforceable redemption dates.The Lloyds move is a wake-up call for AT1 investors.While the bigger banks’ CoCo bonds will probably still be popular, even if the call date is no longer guaranteed implicitly, the change might do more damage to weaker lenders. If investors no longer feel confident that their money will automatically be returned at the first redemption date, they’ll demand a higher return for the risk.The CoCo market only reopened tentatively this month with a new Bank of Ireland Group Plc deal. The Irish lender did what Lloyds refused to do and redeemed its existing AT1 and reissued at a higher cost. At least it managed to keep its investors happy and on board.This new separation between large stable banks being able to act according to their own economic advantage, while smaller rivals have to offer chunkier premiums, is a worry for the health of the financial system. It ought to be an urgent matter for consideration by European regulators. Forcing the strong banks to keep capital has consequences for their less illustrious peers. This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.Marcus Ashworth is a Bloomberg Opinion columnist covering European markets. He spent three decades in the banking industry, most recently as chief markets strategist at Haitong Securities in London.For more articles like this, please visit us at bloomberg.com/opinionSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.
Escalating rhetoric from President Donald Trump hit Wall Street yesterday, but Asian markets today are red all over following China's proposal for a new Hong Kong law to ban sedition, secession and treason. The Hang Seng index plunged 5% at one point and the Hong Kong dollar slid the most in six weeks. World stocks are down around 0.7%, but that may pick up steam as a pan-European index is down 1.5% and Wall Street is expected to open weaker.
When a payroll glitch left Natalie Gallagher so short of cash this month she couldn't afford her bus fare to work, she turned to her usual lender Amigo for an emergency top-up loan. Like many of the lenders that thousands of higher-risk borrowers in Britain depend on, Amigo had tightened its criteria for handing out cash in the wake of the coronavirus. "Amigo was my only real option."
Best known as Britain's biggest financial crisis failure, some investors and analysts view majority state-owned Royal Bank of Scotland as the lender likely to emerge strongest from the coronavirus downturn. RBS had built the largest capital surplus of any major British bank before the pandemic struck, some 14 billion pounds ($17 billion) above the regulatory minimum, and had hoped to use much of this to buy back the government's 62% stake. Now investors are betting this capital cushion, which will help it absorb loan losses resulting from the economic crunch, will help RBS gain greater market share and potentially restore a dividend ahead of rivals.
The following are the top stories on the business pages of British newspapers. - Unsecured creditors of Cath Kidston are owed about £90 million and are expected to receive only a small dividend after its pre-pack administration.
Many of the City of London's bankers and traders will be working from their kitchens or bedrooms for at least a year under some scenarios being planned by finance companies in Britain. Banks, insurance companies and asset managers have had to work remotely since the country locked down in March to fight the coronavirus pandemic. The radical shift from trading floors to people's homes has been deemed a big success in coping with record breaking volatility across financial markets.
A "desk top" stress test has shown that top banks and building societies can withstand the anticipated economic fallout from the coronavirus pandemic, the Bank of England said on Thursday. The BoE's Financial Stability Report said the stress test was based on an economic scenario outlined by the Bank's Monetary Policy Report (MPR).
Today we're going to take a look at the well-established Lloyds Banking Group plc (LON:LLOY). The company's stock saw...
FACTBOX-Latest on the worldwide spread of the new coronavirus After April finished with a whimper on stock markets, the new month has come in similarly weak. Threatening to make a bad situation worse is President Donald Trump, who has weighed in with a threat to impose new trade tariffs on China in retaliation for coronavirus. With the U.S. election campaign likely to get into full swing in coming months, Trump might up his anti-China rhetoric -- he says he was confident the virus originated in a Chinese lab.
Lloyds Banking Group's <LLOY.L> first quarter pretax profit was all but erased by provisions against expected bad loans due to the coronavirus pandemic, although Britain's biggest bank said on Thursday it was well placed to help with a recovery. Viewed as a bellwether for the wider British economy as the country's largest provider of home loans and one of its biggest business lenders, Lloyds reported pre-tax profit of 74 million pounds, down from 1.6 billion pounds the previous year. HSBC and Barclays have also set aside billions of pounds to cover an expected spike in bad loans due to the coronavirus outbreak, with state-backed RBS expected to follow suit on Friday.
Moody's Investors Service today assigned a Prime-1 rating to the USD5 billion Commercial Paper (USCP) programme of Lloyds Bank Corporate Markets plc, NY Branch (LBCM NY), based on the final Information Memorandum dated 24 April 2020. The P-1 rating on LBCM NY's USCP programme reflects the A1 senior unsecured debt rating of Lloyds Bank Corporate Markets plc (LBCM), in line with the agency's usual mapping from long-term to short-term ratings, together with the bank's access to central bank funding in US dollars via its New York branch.
British banks should use their substantial capital and liquidity buffers to support the economy hit by the coronavirus pandemic, the Bank of England said on Monday. The BoE's Prudential Regulation Authority (PRA) said it expects banks to focus on continuing to support customers. "Banks are expected to use their liquidity buffers in doing so, even if it means liquidity coverage ratios go significantly below 100%," the PRA said in guidance to lenders.
Credit Suisse lowered target prices on U.K. banks and downgraded HSBC to neutral from outperform. On HSBC, where the target price is now 515 pence, Credit Suisse said the bank has outperformed its U.K. peers by 20 percentage points year-to-date and has a premium valuation. Credit Suisse's new RBS target price is 175 pence, and it has an outperform rating due to its 16.9% CET1 ratio and limited unsecured credit exposure. It's still underperform on Standard Chartered with a 395 pence target given higher emerging market credit risk and lower core profitability. It's neutral on Barclays , with a 125 pence target, and Lloyds , with a 40 pence target.
The Financial Conduct Authority said on Thursday it would add car financing to the temporary relief measures aimed at supporting households facing sudden financial hardship as result of the coronavirus. As expected, the FCA also confirmed proposals set out last week requiring banks to offer a three-month payment freezes on loans and credit card debt. "We know there is still more work to be done, and we will be announcing further measures to support consumers in other parts of the credit market in the future, including in the motor finance sector next week," FCA Interim Chief Executive Christopher Woolard said in a statement.
The following are the top stories on the business pages of British newspapers. - Britain's biggest retailer Tesco has defended its decision to hand investors a total £900 million ($1.11 billion)in dividends despite taking £585 million ($724.64 million) from the government's business rates relief holiday. - Sir Stelios Haji-Ioannou, founder and the largest shareholder in Easyjet, has stepped his attack on the board of the airline by saying that he will "personally sue those scoundrels" if they go ahead with a multibillion-pound order to acquire more than a 100 new aircraft from Airbus.
UK-listed companies could cancel about $60 billion in dividend payments this year following Britain's lockdown and calls from regulators to preserve cash during the coronavirus crisis, according to a report by analytics company Link Group. As Britain battles to curb the spread of virus, the report published on Thursday showed that a record 41% of dividend payouts by the country's listed companies were under threat if the situation worsens. Link Group, which provides shareholder management services as well as analytics, said it based its UK Dividend Monitor findings on publicly available data from companies listed on Britain's main stock market, and consensus analyst forecasts.
With the future of many coronavirus hit firms in their hands, British banks, still scarred by the financial crisis, are worried that they are being asked by a desperate government to make loans that will never be repaid. This caution, combined with the challenges of an unprecedented demand for loans, is testing the British public's fragile faith in the lenders, which have spent a decade trying to rebuild their battered reputations and capital positions. "We've got to only make loans that we can reasonably believe people will be able to repay after the crisis has gone; to businesses which will still be there," Ian Rand, who runs business lending at Barclays, told Reuters.
(Bloomberg Opinion) -- The scramble to replace vanishing revenue is forcing businesses to take extreme measures. In the U.K, a firm recently broke the revered convention that a company shouldn’t dilute its shareholders by hurriedly selling a massive stake in itself in the open market. It saved on bankers, lawyers, time and paperwork. One week on, this maverick approach has gained official acceptance.Normally a big corporate share sale is about cutting debt or paying for a big takeover. There’s plenty of time to do this properly via a so-called rights offer: the lengthy process whereby investors get priority allocation on any new stock being sold (hence the “rights”). Today’s need for equity is different. Many companies suddenly have zero cash coming in due to measures aimed at combating the coronavirus. Their lenders may not help unless shareholders dig deep too. There’s no time to lose.The solution that’s emerged is to flout British custom and follow U.S. practice instead: Just sell a big slab of shares, ideally to existing shareholders, but ultimately to whomever will take them. After all, anti-dilution protection is not enshrined in U.K. law but in guidance stating that share sales of more than 10% of the company should essentially be via rights offers. That guidance was sensibly revised on Wednesday, with the threshold lifted to 20% over the next six months. Bosses will need to explain why they’re forgoing a rights offer and still try hard to raise the equity from existing owners.Airport caterer SSP Group Plc blazed the trail last week and sold a 20% stake in the market for 216 million pounds ($268 million). HSBC Holdings Plc, Lloyds Banking Group Plc and Royal Bank of Scotland Group Plc simultaneously agreed to lend it 113 million pounds. Each slab of cash appeared to rely on the other being committed.Sticking with the old guidance was not a realistic option. Investment banks could have agreed to underwrite a “standby” rights offer at a price so low it would have wiped out existing shareholders, for a tidy fee. With that backstop secured, an orderly fundraising might have been possible, for another fee. But SSP’s share price would have subsequently tumbled, and the proceeds would have taken weeks to land. Lenders could have then charged the earth for bridging the financing gap.Why ever bother with a rights offer if you can just do what SSP did? Should nimble share placings become the norm? One argument against this is that small shareholders still get diluted. However in this case, they actually did OK: SSP shares rallied. The institutional shareholders who bought the deal paid a premium to SSP’s prior-day share price; there was no VIP bargain. Moreover, speedy share placings could also be made subject to clawback by smaller holders, with some tweaks to the current documentation requirements.The real problem is many firms will need to raise even more than 20% of their share capital this year. Share offerings that big require a chunky prospectus anyway under European regulations. And at that size, the case for ignoring anti-dilution rights is weaker.Shareholders know multiple demands for cash are looming. Companies should form an orderly queue, ask for no more and no less than they need, and choose their methods accordingly.This column does not necessarily reflect the opinion of Bloomberg LP and its owners.Chris Hughes is a Bloomberg Opinion columnist covering deals. He previously worked for Reuters Breakingviews, as well as the Financial Times and the Independent newspaper.For more articles like this, please visit us at bloomberg.com/opinionSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.
Some financial firms are defining an unnecessarily large proportion of staff as "key workers" to ensure they can still come into the office or branch to work, according to a union representing thousands of bank employees. Together with healthcare workers, supermarket employees and delivery drivers, bank staff deemed vital to the stability of the UK economy have been granted freedoms to travel to their workplaces, under terms of a lockdown which began on March 20. Some employers have applied the special status excessively across their workforces, increasing risks to staff health, according to the Unite union whose membership includes bank branch employees and call centre workers.
The Bank of England welcomed moves by Britain's biggest banks to suspend dividends and said it also expects them not to pay cash bonuses to senior staff during the coronavirus epidemic. The BoE's Prudential Regulation Authority said banks entered the pandemic, which has put Britain into lockdown, with strong capital positions, enough to withstand a severe UK and global recession. "The PRA also expects banks not to pay any cash bonuses to senior staff, including all material risk takers, and is confident that bank boards are already considering and will take any appropriate further actions with regard to the accrual, payment and vesting of variable remuneration over coming months," the PRA said in a statement.