Lloyds fails in bid to buy back crisis-issued bonds early

The High Court has ruled against Lloyds Banking Group in its bid to save around £1 billion by buying back early bonds issued in the wake of its 2008 bailout.

The bonds were issued in 2009 to provide the security of an extra layer of capital in the aftermath of Edinburgh-based Lloyds’ rescue by the UK government following the financial crisis the previous year.

With annual interest of up to 16 per cent, the enhanced capital note (ECN) securities were popular with hedge funds and asset managers and thousands of retail investors.

But Lloyds, in which the government still holds a 19 per cent stake, had sought to save £200 million annually in payments over the next five years by buying the bonds back early and at face value.

But the judge ruled the lender will have to honour the generous coupon payments until the bonds mature between 2019 and 2029.

Lloyds had argued that new regulatory capital rules for banks meant the bonds would no longer count as core capital to cushion the group if it ran into future problems.

However, the judge ruled that even though the ECNS were not taken into account for the most recent bank capital stress tests, they may be for future stress tests and there was no grounds for cancelling them.

Lloyds said it was “disappointed” with the ruling and would seek permission to appeal.