Lloyds Bank yesterday failed in its bid to buy back high-yielding bonds from retail investors, after a high court judge said it had not met the conditions for an exchange.
The enhanced capital notes (ECNs) are designed to bolster the bank’s capital buffers, and were issued shortly after the lender was bailed out by the government.
They are designed to convert to boost the buffers when capital levels fall below a set trigger.
But in the latest stress tests, the Bank of England decided the notes would not count towards the buffers, and so Lloyds wanted to buy back the notes at face value.
This would save around £200m per year over the next five years, as it would no longer have to pay the interest rate of between six and 16 per cent.
But the judge agreed with the owners of the bonds, who argued the trigger to exchange the notes had not been met.
The judge ruled that the notes may still end up counting towards the bank’s capital buffers in future stress tests.
“The group is disappointed with the decision and has sought permission to appeal to the Court of Appeal,” Lloyds said in a market announcement.