Lloyds "disappointed" as High Court blocks early ECN cancellation, plans to appeal decision

3rd Jun 2015 11:11

Lloyds Banking Group said it was "disappointed" with a High Court ruling blocking its attempt to buy back its high-interest enhanced capital notes (ECNs).The judge ruled that the bank was not entitled to redeem the bonds, which are are held by 123,000 investors, early at face value.Lloyds had argued that as the ECNs were not taken into account for the most recent stress test applied by the Prudential Regulation Authority, it meant they did not constitute a capital disqualification event (CDE) and could therefore be cancelled.But judge said ECNs may still be taken into account for future stress tests and therefore a CDE had not yet occurred."The group is disappointed with the decision and has sought permission to appeal to the Court of Appeal," Lloyds said. "In the event that the group is unsuccessful in the appeal the opportunity to refinance these high coupon securities, with an associated benefit of around £200m per annum for the next five years, would be foregone."It added that regardless of the outcome of the appeal, it remained confident that its net interest margin for 2015 will exceed around 2.55%, in line with current guidance."In the longer term the group also continues to expect its return on required equity to be 13.5%-15.0% by the end of 2017," it added.The bank received permission from the Prudential Regulatory Authority (PRA) in March to redeem certain series of ECNs, meaning owners of a particular types of the investor bond would have stopped receiving returns on those products, but awaited the High Court judgment over whether early cancellation would go against the bonds' terms.Lloyds admitted in court that there were errors in the terms and conditions of the bonds.At the end of the hearing, the judge said: "Plainly this matter not only involves a great deal of money, but it is of a great deal of importance to many people, not only the institutions but the many individual retail investors who have these notes, which are important to them because they produce a high coupon [interest rate]."And it is obviously very important to the bank itself because of the cost of borrowing, so there are very important practical implications for everybody here."I am, therefore, going to take time to consider my judgment. I will do so as speedily as I can, because I am conscious of the need to resolve uncertainty."