Lloyds wins £1bn bondholder battle in the UK's highest court

Jessica Morris
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Lloyds issued the bonds during the financial crisis (Source: Getty)

Shares in Lloyds Banking Group bounced after a court ruled the bank won't have to pay extra money to buy back thousands of bondholders' investments, following a seven-year legal battle.

Lloyds shares were up 5.7 per cent at 64.8p per share this morning, after it emerged the decision, published earlier this week, will save Lloyds around £1bn.

The supreme court voted 3:2 to let it redeem £3.3bn of the notes early at face value, against bondholders who'd sought extra payment for the early redemption.

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Judge David Neuberger, president of the Supreme Court, said: "The preferable (majority) view is that the ECNs must play a part in enabling LBG to pass the stress-test."

"Under the regulations passed in 2013, the ECNs cannot be taken into account so as to do the very job for which their convertibility was designed, namely to enable them to be converted before the regulatory minimum Tier 1 ratio is reached."

A Lloyds spokesman said: "Throughout this process, the group has sought to balance the interests of all stakeholders including our 2.6m shareholders, as it takes steps to meet the requirements of the changing regulatory landscape and manage its capital requirements efficiently."

Lloyds issued a total of £8.3bn of the so-called enhanced capital notes in 2009, part of a recapitalisation in the midst of the financial crisis, with a yield as high as 16 per cent. It demonstrated how hard it was for banks to find investors at that time.

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While investors will be unable to replace that income if they simply receive their money back on the bonds, Lloyds insisted the small print gives it the right to buy back the debt at par.

Last year a judge said the bank wouldn't be able to demand an early redemption of some bonds it had sold to ordinary investors, however this was subsequently overturned by the Court of Appeal and now the Supreme Court.

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