NOT FOR RELEASE, PUBLICATION OR DISTRIBUTION, IN WHOLE OR IN PART, DIRECTLY OR
INDIRECTLY, IN OR INTO OR FROM THE UNITED STATES, HONG KONG, ISRAEL, JAPAN,
THAILAND OR ANY JURISDICTION WHERE TO DO SO WOULD CONSTITUTE A VIOLATION OF THE
RELEVANT LAWS OF SUCH JURISDICTION.
PROPOSED ALTERNATIVE TO THE GOVERNMENT ASSET PROTECTION SCHEME COMPRISING A
RIGHTS ISSUE AND LIABILITY MANAGEMENT EXERCISE BY WAY OF EXCHANGE OFFERS
Lloyds Banking Group plc ('Lloyds Banking Group') today announces proposals
intended to meet its current and long-term capital requirements which, if
approved by shareholders, will mean that the Group will not participate in the
Government Asset Protection Scheme ('GAPS').
Fully underwritten Proposals to generate at least £21 billion of core capital1,
comprising:
£13.5 billion rights issue. HM Treasury, advised by UKFI, has undertaken to
subscribe in full for its 43 per cent entitlement
Exchange Offers to generate at least £7.5 billion of contingent core tier 1
and/or core tier 1 capital (core tier 1 capital capped at £1.5 billion)
High quality, robust and efficient capital structure:
Immediate 230bps increase in core tier 1 capital ratio from 6.3 per cent to 8.6
per cent2
Significant contingent core tier 1 capital - equates to additional core tier 1
capital of 1.6 per cent3 if the Group's published core tier 1 capital ratio
falls below 5 per cent
Reinforces the Group's capital ratios in stress conditions and meets FSA's
stress test
Higher quality capital compared to GAPS where capital benefit reduces over time
Significantly more attractive for shareholders than GAPS:
Expected to make no claims under GAPS on basis of current performance
expectations
Expected claims less than £15.6 billion GAPS fee under the FSA's stress test
scenario
EPS and Return on Equity enhancing relative to GAPS
Expected EU State Aid remedies not materially negative to the Group and less
onerous than anticipated under GAPS:
Disposal of a retail banking business with a 4.6 per cent current account
market share and c.19 per cent of the Group's mortgage balances
£180 billion non-core asset run-down (consistent with half year announcement)
Prohibition on discretionary coupon payments and calls for 2 years
Consequent prohibition on ordinary share dividends for a similar period
Prohibition on making certain acquisitions for a period of 3 to 4 years
Group will pay £2.5 billion to HM Treasury for the benefit to the Group's
trading operations as a result of HM Treasury proposing to make GAPS available
to the Group
Continue to expect cost synergies of over £1.5 billion per annum by 2011
Third quarter IMS released today: Group on track to deliver in line with
expectations:
Good revenue performance with margins stabilising
Impairment run rate has slowed: continued confidence that overall impairments
peaked in first half 2009
1 Core tier 1 and contingent core tier 1 capital; before transaction
expenses and the payment of the fee to HM Treasury for the benefit to the
Group's trading operations as a result of HM Treasury proposing to make
GAPS available to the Group.
2 Pro-forma as at 30 June 2009, after expenses and GAPS payment.
3 Pro-forma as at 30 June 2009 using the Group's actual risk-weighted assets
at that date.
Sir Winfried Bischoff, Chairman of Lloyds Banking Group, said:
"These Proposals provide a significantly more attractive, market-based
alternative to participating in GAPS and offer superior economic value to
shareholders. We believe that this represents a significant step towards
meeting our, and the Government's, objective that the Group operates as a
wholly privately-owned, self supporting commercial enterprise."
A letter from Sir Winfried Bischoff to Lloyds Banking Group shareholders is
included in the circular, a copy of which is being sent to shareholders today.
This letter is reproduced in full below.
Availability of the Circular, Prospectus and Exchange Offer Memorandums
The Circular, including a notice convening a general meeting of Lloyds Banking
Group to be held at 11.00 a.m. on 26 November 2009 at Hall 12, The Atrium,
National Exhibition Centre, Birmingham B40 1NT, will be posted to shareholders
today.
Copies of the Prospectus and the Exchange Offer Memorandums will be available
on request in hard copy free of charge from the Lloyds Banking Group's
registered office (Henry Duncan House, 120 George Street, Edinburgh EH2 4LH) or
by calling 0871 384 2990 and on the Lloyds Banking Group website at
www.lloydsbankinggroup.com.
Copies of each of the Prospectus, the Circular and the Exchange Offer
Memorandums will also shortly be available (subject to certain restrictions
including, but not limited to, restrictions on access to such documents in
certain jurisdictions) on the Lloyds Banking Group website at
www.lloydsbankinggroup.com/investors. The implications of the information
contained in the Prospectus, the Circular and the Exchange Offer Memorandums
for Overseas Shareholders may be affected by the laws of the relevant
jurisdiction. Such Overseas Shareholders should inform themselves about and
observe any applicable legal requirements.
The Prospectus, the Circular and the Exchange Offer Memorandums will shortly be
available for inspection at the UKLA's Document Viewing Facility which is
situated at:
Financial Services Authority
25 The North Colonnade
Canary Wharf
London E14 5HS
Investor meeting
A meeting for analysts and investors will be held today at 10.00 a.m. (GMT) in
the King Edward Hall, Merrill Lynch Financial Centre, 2 King Edward Street,
London EC1A 1HQ. This meeting will be webcast live on the Group's website
www.lloydsbankinggroup.com.
Merrill Lynch International ('Merrill Lynch') and UBS Limited ('"UBS") are
acting as joint sponsors, joint financial advisers, joint global co-ordinators
and joint bookrunners. Citigroup Global Markets U.K. Equity Limited ("Citi")
is acting as joint global co-ordinator and joint bookrunner. The Rights Issue
is fully underwritten by Merrill Lynch, UBS, Citi, Goldman Sachs International
("Goldman Sachs"), HSBC Bank plc ("HSBC"), J.P. Morgan Cazenove Limited
("JPMorgan Cazenove") and others. Lloyds TSB Corporate Markets is acting as
Co-Bookrunner. Credit Suisse Securities (Europe) Limited and Deutsche Bank AG
are each acting as financial advisor for HM Treasury and UKFI.
This summary should be read in conjunction with the full text of this
announcement and the prospectuses which are being made available today and it
is not a prospectus or a prospectus "equivalent" document. Any investment
decision in relation to the Proposals must only be made on the basis of
information contained in and incorporated by reference in the relevant
prospectuses. Qualifying Shareholders should also read, in full, the risk
factors set out in the prospectus published by the Company relating to the
Rights Issue dated the date of this announcement. Unless otherwise defined,
capitalised terms used in this announcement have the same meaning as in the
Circular.
Contacts
For further information, please contact:
Lloyds Banking Group
Michael Oliver +44 (0) 20 7356 2167
Shane O'Riordain +44 (0) 20 7356 1849
BofA Merrill Lynch +44 (0) 20 7628 1000
Matthew Greenburgh
Rupert Hume-Kendall
Siddharth Prasad
UBS Investment Bank +44 (0) 20 7567 8000
Christopher Fox
Vinod Vasan
Christopher Smith
Lucy Taylor-Smith
Citi +44 (0) 20 7986 4000
David A James
Andrew Thompson
Shareholder enquiries
If you have questions in relation to the Proposals, please telephone the
Shareholder Helpline on the numbers set out below.
UK: 0871 384 2990
Overseas: +44 (0) 208 495 4630
LETTER FROM SIR WINFRIED BISCHOFF, CHAIRMAN OF LLOYDS BANKING GROUP PLC
Directors:
Registered Office:
Sir Winfried Bischoff (Chairman)
Lord Leitch (Deputy Chairman)
J Eric Daniels (Group Chief Executive)
Archie G Kane
G Truett Tate
Tim J W Tookey
Helen A Weir CBE
Dr. Wolfgang C G Berndt
Sir Julian Horn-Smith
Carolyn J McCall OBE
T Timothy Ryan, Jr.
Martin A Scicluna
Anthony Watson CBE
Henry Duncan House
120 George Street
Edinburgh
EH2 4LH
3 November 2009
Dear Shareholder,
PROPOSED ALTERNATIVE TO THE GOVERNMENT ASSET PROTECTION SCHEME COMPRISING A
RIGHTS ISSUE AND LIABILITY MANAGEMENT EXERCISE BY WAY OF EXCHANGE OFFERS
TOGETHER WITH THE HMT TRANSACTIONS AND SHARE SUBDIVISION
1 Introduction
Today, Lloyds Banking Group plc has announced proposals intended to meet its
current and long-term capital requirements. If you, our shareholders, approve
these proposals, it will mean that the Group will not participate in the
Government Asset Protection Scheme ("GAPS").
The Group has also released a trading update today. This reinforces the Group's
views expressed in its Interim Results News Release in August that the economic
environment in the UK has begun to stabilise. Group margins are also beginning
to stabilise, cost reductions for the Group remain on track and overall Group
impairments have peaked. Based on the Group's trading performance during the
year to date, the Board now has increased confidence in the Group's ability to
deliver a strongly improving business performance in 2010 and 2011. Further
details on the Group's trading update can be found in paragraph 12 of this
letter.
Under the Proposals, which are fully underwritten pursuant to the Underwriting
Agreements and the HMT Undertaking to Subscribe, the Group will, subject to
Ordinary Shareholder approval: (i) raise £13.5 billion (£13 billion net of
expenses of the Proposals) by way of a Rights Issue; and (ii) generate at least
£7.5 billion in core tier 1 and/or nominal value of contingent core tier 1
capital through the Exchange Offers and/or the related underwriting
arrangements. The Board believes that the Proposals provide a significantly
more attractive alternative to participating in GAPS and offer superior
economic value to shareholders.
HM Treasury, which holds a 43.4 per cent. holding in Lloyds Banking Group, has
undertaken to the Company, pursuant to the HMT Undertaking to Subscribe, to
procure that the Solicitor for the Affairs of Her Majesty's Treasury (as
nominee for HM Treasury) will vote in favour of the Resolutions which are being
put before Ordinary Shareholders to implement the Proposals and on which it is
entitled to vote. HM Treasury has also undertaken to participate in full in
respect of its rights in the Rights Issue. The Board welcomes HM Treasury's
support. In addition, all the Directors intend to participate in respect of
their rights in the Rights Issue.
Alongside the Proposals the Group has agreed, subject to shareholder approval
(excluding HM Treasury), to pay to HM Treasury a fee of £2.5 billion for the
benefit to the Group's trading operations arising as a result of HM Treasury
proposing to make GAPS available to the Group (the "GAPS Payment") and the HMT
Commitment Commission, being a commission of up to £143.7 million in
consideration, inter alia, of HM Treasury's pre-launch commitment to
participate in full in respect of its entitlements under the Rights Issue.
Payment of a fee in relation to the benefit to the Group's trading operations
as described above is also required by the European Commission as part of the
expected state aid remedies. The Group has also agreed to reaffirm the lending
commitments that it gave to HM Treasury in March 2009 and to maintain in the 12
months commencing 1 March 2010 similar overall levels of lending as in the 12
months commencing 1 March 2009.
Over the past few months, HM Treasury and the Group have been involved in
detailed negotiations with the European Commission in relation to the terms of
a restructuring plan which is required in the context of a review resulting
from the state aid which has been received by the Group. The Group, together
with HM Treasury, has now finalised negotiations with the European Commission
around the terms of the restructuring plan and the Group expects to receive a
formal decision from the Commission on the state aid position and the
restructuring plan by the end of 2009. The Group is confident that the final
terms of the restructuring plan will not have a materially negative impact on
the Group. However, the Company expects to be prevented from paying dividends
on Ordinary Shares for so long as it is prohibited from making coupon payments
on certain of its other securities (which is expected to be between 31 January
2010 and 31 January 2012) as a result of the restrictions expected to be
required by the European Commission as part of the restructuring plan. Further
details on the current state aid position are set out in paragraph 5 of this
letter.
2 The Proposals
The Proposals comprise:
(i) an equity raising of £13.5 billion (£13 billion net of the expenses of
the Proposals) by way of a Rights Issue. The Rights Issue is fully underwritten
pursuant to the Rights Issue Underwriting Agreement and the HMT Undertaking to
Subscribe. The Issue Price at which Qualifying Shareholders will be invited to
subscribe for New Shares will be determined by the Company and the Joint
Bookrunners in advance of the General Meeting and will be at a discount to the
Theoretical Ex-Rights Price ("TERP"), taking account of market conditions and
other relevant factors; and
(ii) two separate Exchange Offers. Under the Exchange Offers, eligible
holders of Existing Securities will be invited to offer to exchange such
Existing Securities for either: (a) new lower tier 2 capital qualifying bonds
which will be guaranteed by either the Company and/or Lloyds TSB Bank
("Enhanced Capital Notes" or "ECNs") and which will convert into Ordinary
Shares if the Group's published consolidated core tier 1 capital ratio falls to
less than 5 per cent.; or (b) in the Non-US Exchange Offer only, an Exchange
Consideration Amount which shall be settled in new Ordinary Shares or, at the
election of the Company, cash or, in certain circumstances, ECNs. The Exchange
Offers, and/or the underwriting arrangements related thereto, will create at
least £7.5 billion in core tier 1 and/or nominal value of contingent core tier
1 capital. While the Exchange Offers are underwritten up to £7.5 billion, to
the extent that the Exchange Offers are successful and that a market develops
in ECNs, the Directors believe it is in the best interests of the Company to
have the flexibility to issue further ECNs to satisfy demand.
The Proposals are fully underwritten, pursuant to the Underwriting Agreement
and the HMT Undertaking to subscribe, as discussed further in paragraph 8 of
this letter and sections 8.5 and 8.6 of Part XX ("Additional Information") of
the Rights Issue Prospectus. Each element of the Proposals is conditional on
the approval by the Ordinary Shareholders of the Proposals Resolutions which
include the HMT Transactions and the Share Subdivision).
A more detailed summary of the terms of the Exchange Offers is set out in
paragraph 8 and Part A of the Appendix to this the Chairman's Letter in the
Circular. No offer of Nil Paid Rights, Fully Paid Rights, New Shares or ECNs is
being made by means of this announcement or the Circular. Full details of the
Rights Issue and the Exchange Offers, as the case may be, will be made
available to eligible investors or holders in the Rights Issue Prospectus and
PALS and the Exchange Offer Memoranda, respectively.
3 Rationale and key benefits of the Proposals
Rationale
As discussed further in paragraph 7 of this letter, the Board believes that the
economic environment in the UK has begun to stabilise and that the UK economy
is now expected to return to growth in 2010. This represents a significantly
more positive environment for the Group than the conditions prevailing when the
FSA Stress Test was carried out in March 2009, the time at which the Group
announced its intended participation in GAPS. As previously announced, the
Board continues to expect that the Group's overall impairments in the second
half of the year will be significantly lower than those incurred in the first
half, with progressive reductions expected thereafter.
Claims under GAPS could only be made after the First Loss (as defined in
paragraph 6 of this letter) had been exceeded. However, based on the Board's
view of the economic outlook for the UK, the Group does not expect that its
overall impairments will be high enough to justify entering into GAPS. On this
basis the Group would not expect to make any claim were it to participate in
GAPS, but would nevertheless still incur significant costs. Even if the UK
economy were to deteriorate to the level assumed in the FSA Stress Test, which
the Board considers to be unlikely, the Board believes that the net amounts
that the Group would have received under GAPS would have been less than the
£15.6 billion participation fee which it would have been required to pay to
participate in GAPS on the terms announced in March.
Accordingly, the Board is of the view that an alternative approach to meeting
its current and long-term capital commitments, in the form of the Proposals, is
in the best interests of the Group and its shareholders. The Proposals have
been structured in consultation with the FSA. The Board is therefore confident
that the Proposals, together with other management actions which the Board
considers to be readily actionable, will generate sufficient capital to ensure
that the Group no longer requires the asset protection which it would have
obtained through participation in GAPS, even if the severe scenario envisaged
by the FSA Stress Test were to occur. The Board believes that the Proposals
represent a significant step in meeting its long-term objective: that the Group
operates as a wholly privately-owned, self-supporting commercial enterprise.
The Board is pleased that it is now able to offer a market-based solution to
meet its capital requirements. Such a solution was not available to the Group
at the time of the announcement of the Group's intended participation in GAPS
in March 2009.
Key benefits
Were it to participate in GAPS, the Group would benefit from certain loss and
regulatory capital relief (as set out in more detail in paragraph 6 of this
letter). However, the Board believes that the Proposals offer substantial
benefits to shareholders, both on their own merits and as a significantly more
attractive option in comparison to GAPS, for the reasons described in more
detail below. The Board believes that the Proposals, after taking into account
the GAPS Payment, will enhance both earnings per share and returns on equity
for the Company relative to GAPS, even if the UK economy deteriorates to the
level implied by the FSA Stress Test, which the Board considers to be unlikely.
Substantial increase in non-amortising core tier 1 equity capital: The Rights
Issue will raise a total of £13.5 billion of immediately available and
non-amortising core tier 1 capital, before expenses of the Proposals. Had the
Rights Issue been completed as at 30 June 2009, the Group would have had a pro
forma core tier 1 capital ratio of approximately 8.6 per cent., after taking
into account expenses of the Proposals and the GAPS Payment. The Board
considers that this implied level of core tier 1 capital represents a strong
capital foundation to support the future stability and success of the Group.
Moreover, the core tier 1 capital raised by the Rights Issue will be available
to absorb potential losses across all of the Group's assets, as opposed to GAPS
which would only protect against losses on those particular assets covered by
the scheme. The core tier 1 capital which would be created on conversion of the
ECNs (if and when they were to convert) would also be available to absorb
potential losses across all the Group's assets.
By contrast, based on the terms announced in March 2009, GAPS would have
created an initial £15.6 billion of core tier 1 capital through the
subscription by HM Treasury, using the GAPS participation fee, for B Shares.
However, the core tier 1 capital benefit of £15.6 billion from the issue of the
B Shares would have been largely offset over the subsequent seven-year period
by the GAPS participation fee which would have been amortised through the
Group's income statement. After taking tax into consideration, this would have
reduced core tier 1 capital by £11.2 billion. Furthermore, although GAPS would
offer an additional core tier 1 capital benefit by providing capital relief on
the risk-weighted assets that would initially have been included in the scheme,
this benefit would have reduced significantly as the assets within GAPS matured
or otherwise ceased to be covered by GAPS in the short-to-medium term.
Improved capital efficiency and lower shareholder dilution: The ECNs to be
issued pursuant to the Exchange Offers have been designed to provide capital to
the Group without being dilutive to shareholders at the time of their issue.
The ECNs will qualify at the time of their issue as lower tier 2 capital and
automatically convert into Ordinary Shares if the Group's published
consolidated core tier 1 capital ratio falls to less than 5 per cent. thereby
increasing the Group's core tier 1 capital at such time. In the event of a
conversion pursuant to this feature, up to £7.5 billion of core tier 1 capital
would be generated. This provides protection against unexpected deterioration
in the UK economy and the effect that such deterioration would have on the
Group's capital ratios. Conversion of the ECNs, and the resulting dilution of
Ordinary Shareholders, would only occur if the Group's results (in particular
impairments) were significantly worse than the Board currently expects.
By contrast, under GAPS, the B Shares to be issued to HM Treasury, at a cost to
HM Treasury of £15.6 billion, would have been available for conversion at HM
Treasury's option into 13.6 billion Ordinary Shares, and would have converted
automatically if the volume weighted average trading price of the Ordinary
Shares equalled or exceeded 150 pence per Ordinary Share for 20 complete
trading days in any 30 trading day period. Upon such conversion, HM Treasury's
ownership of the Company would have increased to approximately 62.3 per cent.
from its current level of 43.4 per cent. This substantial dilution to Ordinary
Shareholders (other than HM Treasury) would, therefore, have occurred in the
event that the Company's share price increased to such levels or if HM Treasury
exercised its option to convert to Ordinary Shares.
Cost effective: By implementing the Proposals, although the Group will be
required to make the GAPS Payment, the Group will not have to pay the £15.6
billion GAPS participation fee to HM Treasury. In addition, the Company will
not issue any B Shares and, accordingly, will not have to pay HM Treasury the
proposed annual dividend on the B Shares of at least £1.1 billion, subject to
the Company having sufficient distributable reserves.
Improved EU state aid position relative to GAPS: Based on discussions with HM
Treasury and the European Commission, the Board believes that, should
shareholders adopt the Proposals, the total amount of state aid received by the
Group will be significantly lower than would have been expected to be the case
had the Group participated in GAPS. The Board believes that this will
significantly reduce the severity of the final terms of the restructuring plan
required by the European Commission to limit distortions of competition
resulting from the state aid received by the Group. An update on the Group's
current state aid position is set out in paragraph 5 of this letter.
No additional administrative and operational burden: Participation in GAPS
would have required the Group to create an additional administrative and
reporting infrastructure that would have been costly, both from a financial
perspective and in terms of management time. This would have inhibited the
Group's operational and commercial efficiency and flexibility and absorbed
substantial Group resources.
Further detailed information on the background to GAPS and the Proposals,
including the reasons for the Board concluding that not participating in GAPS
is preferable to renegotiating an amended scheme, is set out in the remaining
paragraphs of this letter.
4 GAPS Withdrawal Deed; HMT Undertaking to Subscribe
GAPS Withdrawal Deed
Alongside the Proposals, the Company has entered into the GAPS Withdrawal Deed.
This agreement sets out the various commitments and terms agreed with HM
Treasury including with respect to the implementation of the expected state aid
remedies (for further detail, see paragraph 5 of this letter).
The GAPS Withdrawal Deed provides that the Group shall, subject to state aid
approval being obtained and to Resolution 4 being approved by the Ordinary
Shareholders (excluding HM Treasury) at the General Meeting, make the GAPS
Payment. This is a fee which the Group is proposing to pay to HM Treasury for
the benefit to the Group's trading operations arising as a result of HM
Treasury proposing to make GAPS available to the Group from the time of the
Group's announcement of its intention to participate in GAPS in March 2009
until the announcement of the Proposals. Payment of a fee is also required by
the European Commission as part of the expected state aid remedies.
Had the Group not reached agreement with HM Treasury on the amount of the GAPS
Payment, the Group would not be able to pursue and implement the Proposals
since payment of an agreed fee is a pre-requisite to finalising negotiations
with the European Commission in respect of the remedies to address the state
aid the Group has received, as described further in paragraph 5 of this letter.
The terms announced in March in connection with the Group's intended
participation in GAPS did not address whether a fee should be paid by the Group
if it did not ultimately accede to GAPS. Therefore there is no contractual
measure by which the Group can determine the level of such fee. Furthermore,
whilst the European Commission has required that a commercially appropriate fee
be paid, they have not prescribed the amount. The GAPS Payment has been
negotiated between the Company and HM Treasury and is expected to be approved
by the European Commission.
In order to determine what level of fee it would be appropriate to pay, the
Group sought to quantify the benefit to the Group's trading operations arising
as a result of HM Treasury making GAPS available to the Group.
The benefit to the Group has been calculated based on an estimate of the cost
of capital for the Group equal to the amount of regulatory capital benefit
which the Directors consider would have been received by or generated for the
Group through GAPS for the period from the announcement of the Group's
intention to participate in GAPS until today's date. Had GAPS not been
available to the Group it would have needed to raise further capital. The
calculation is difficult and, in some material respects, relies upon subjective
judgements of some complexity and uncertainty. However, the amount of such
regulatory capital benefit is based on: (i) the reduction of risk-weighted
assets which would have arisen by virtue of GAPS; and (ii) the issuance of the
B Shares. In order to determine the cost of capital for the Group, a range of
outcomes can be derived from long-term historical data as well as relevant
market transactions during the period. However, in this case, the Board took
into account the fact that, in March 2009, the capital markets were under
severe stress and the cost of capital for the Group would have been
correspondingly materially higher than might have been available were only
long-term historical data being used.
There are several other reasonable and supportable bases on which one can seek
to quantify the benefit to the Group, and therefore the appropriate amount of
the GAPS Payment. Before coming to an agreement with HM Treasury on the amount
of the GAPS Payment based on the cost of capital for the Group, the Group
carried out a number of analyses, in addition to the analysis referenced above,
and determined a range of amounts which the Board believes reflect the amount
of benefit received by the Group. The amount of the GAPS Payment negotiated and
agreed with HM Treasury falls within the range of such appropriate amounts,
albeit at the high end of that range. However, the Board believes that the GAPS
Payment is a proportionate fee and reflects the amount of benefit received by
the Group's trading operations.
The Board, having assessed carefully the amount of the GAPS Payment and the
substantial benefits of the Proposals, believes that the Proposals, after
taking into account the GAPS Payment, will enhance earnings per share and
returns on equity for the Company relative to GAPS and, therefore, represent
superior economic value to shareholders.
The GAPS Withdrawal Deed also includes undertakings by the Company in respect
of certain other matters. In particular, with respect to remuneration, the
Company has acknowledged its commitment to the principle that, from 2010, it
should be at the leading edge of implementing the G20 principles, the FSA code
on remuneration and any remuneration provisions accepted by the Government from
the Walker Review, provided that this principle shall always allow the Group to
operate on a level playing field with its competitors. In addition, the Company
has agreed with HM Treasury the specific deferral and clawback terms which will
apply to any bonuses in respect of the 2009 performance year.
Furthermore, under the GAPS Withdrawal Deed, the Group has agreed to reaffirm
the lending commitments which were originally given in the Lending Commitments
Deed entered into by the Group on 6 March 2009 in connection with the Group's
then proposed participation in GAPS. Under those lending commitments, the
Company agreed to increase lending by approximately £14 billion in the 12
months commencing 1 March 2009 to support UK businesses (£11 billion) and
homeowners (£3 billion). The Group has agreed to maintain similar levels of
lending in the 12 months commencing 1 March 2010, subject to adjustment of the
funding commitments by agreement with HM Treasury, the Department for Business,
Innovation and Skills and the Department for Communities and Local Government
to reflect circumstances at the start of the 12-month period commencing 1
March 2010.
This additional lending in 2009 and 2010 is expressed to be subject to the
Group's prevailing commercial terms and conditions (including pricing and risk
assessment) and, in relation to mortgage lending, the Group's standard credit
and other acceptance criteria (see the summary of the terms of the Lending
Commitments Deed in section 8.2 of Part XX ("Additional Information") of the
Rights Issue Prospectus). This lending commitment is part of the Group's
ongoing support for UK businesses and homeowners.
The Group has additionally pledged its support for various Government schemes
designed to provide additional funding for small businesses, and has also
published charters for its small business customers making a range of pledges
to help firms through the downturn.
HMT Undertaking to Subscribe
Under the HMT Undertaking to Subscribe, subject to certain terms and
conditions, HM Treasury has irrevocably undertaken to procure that the
Solicitor for the Affairs of Her Majesty's Treasury (as nominee for HM
Treasury) (i) votes in favour of all of the Resolutions in accordance with the
recommendation of the Board (except for the related party transaction
resolution (Resolution 4) approving the HMT Transactions) and (ii) takes up its
rights to subscribe for all of the New Shares to which it is entitled under the
Rights Issue. The HMT Undertaking to Subscribe is conditional upon, among other
things, the passing of Resolution 4 approving the HMT Transactions. Conditional
upon (ii) above and the receipt by the Company of the aggregate subscription
proceeds payable by HM Treasury, the Company has agreed to pay to HM Treasury
(or to such other person as HM Treasury may direct) the HMT Commitment
Commission. If HM Treasury had not committed to participate in full in respect
of its entitlements under the Rights Issue, then the Group would have sought to
ensure that HM Treasury's entitlement under the Rights Issue would have been
covered by the underwriting commitments given by the Underwriters in which case
an amount similar to that to be paid to HM Treasury would have been expected to
have been paid instead to the Underwriters. Further details of the HMT
Undertaking to Subscribe are set out in section 7.2 of Part XX ("Additional
Information") of the Rights Issue Prospectus.
Related Party Transaction
As HM Treasury holds more than 10 per cent. of the voting rights in the
Company, HM Treasury is a "related party" for the purposes of the Listing
Rules. Making the GAPS Payment and payment of the HMT Commitment Commission
(together the "HMT Transactions") are each "related party transactions" (as
defined in the Listing Rules). The HMT Transactions must, pursuant to the
Listing Rules, each be approved by the Ordinary Shareholders other than the
related party, that is HM Treasury. Resolution 4 seeks approval for the HMT
Transactions. However, HM Treasury shall not be entitled to vote on such
Resolution. HM Treasury has further undertaken, as required by the Listing
Rules, to take all reasonable steps to ensure that its associates, if any, will
not vote on that Resolution.
5 State Aid
The Group has previously announced that, as a result of HM Treasury's
investment in the Company in the context of the placing and open offer
undertaken by the Company in November 2008 and the Group's participation in the
Credit Guarantee Scheme, the Group has been required to work with HM Treasury
to submit a restructuring plan to the European Commission in the context of a
state aid review. Any such plan is required to contain measures to limit any
competition distortions resulting from the state aid received by the Group.
The European Commission has made it clear that it will require the Group to
divest a standalone UK banking business as a condition of obtaining state aid
approval and may also require behavioural restrictions as part of the
restructuring plan. Accordingly, over the past few months, HM Treasury and the
Group have been involved in detailed negotiations with the European Commission
in relation to the terms of the restructuring plan (including the ultimate
compensatory measures) in order to reach a mutually acceptable solution.
The ultimate decision regarding the approval of the UK Government's state
measures, including the terms of the final restructuring plan, will be taken by
the College of Commissioners (which the Board expects to occur before the end
of 2009), and therefore at this stage there can be no certainty as to the
outcome of the state aid proceedings and the content of the final restructuring
plan. See the risk factor described in section 1.3 of Part II ("Risk Factors")
of the Rights Issue Prospectus for further discussion of the risks relating to
the state aid proceedings. The Board expects, however, based on the outcome of
its negotiations with HM Treasury and the European Commission, that the final
restructuring plan will consist of the following principal elements:
(i) the disposal of a retail banking business with at least 600 branches, a
4.6 per cent share of the personal current accounts market in the UK and
approximately 19 per cent of the Group's mortgage assets. The business would
consist of:
• the TSB brand;
• the branches, savings accounts and branch based mortgages of Cheltenham &
Gloucester;
• the branches and Branch Based Customers of Lloyds TSB Scotland and a
related banking licence;
• additional Lloyds TSB branches in England and Wales, with Branch Based
Customers; and
• Intelligent Finance,
and would need to be disposed of within four years;
(ii) an asset reduction programme to achieve a £181 billion reduction in a
specified pool of assets by 31 December 2014; and
(iii) behavioural commitments, including commitments:
• not to make certain acquisitions for approximately three to four years; and
• not to make discretionary payments of coupons or to exercise voluntary
call options on hybrid securities from 31 January 2010 until 31 January 2012,
which will prevent the Group from paying dividends on its ordinary shares for
the same duration.
The assets and liabilities, and associated income and expenses, of the business
to be divested (referred to in sub-paragraph (i) above) cannot be determined
with precision until nearer the date of sale. However, the Company estimates
that, as at 31 December 2008 and after aggregating the elements relating to
Lloyds TSB and HBOS, the business to be divested comprised approximately £70
billion of customer lending and £30 billion of customer deposits and, on this
basis, approximately £18 billion of risk-weighted assets. For the year ended 31
December 2008, the Board estimates that the business to be divested generated
income of approximately £1.4 billion and, after associated direct expenses of
approximately £600 million and impairment charges of £300 million, contributed
approximately £500 million of profit before tax to the Group.
The Board believes that the restructuring plan as described above is sufficient
to obtain approval from the European Commission for the state aid the Group has
received, including to the extent that HM Treasury's participation in the
placing and compensatory open offer in June 2009 and in the Rights Issue might
constitute state aid, as well as any commercial benefit received by the Group
following the Group's announcement in March 2009 of its intention to
participate in GAPS. The Board is confident that this restructuring plan will
not have a materially negative impact on the Group.
The Company has agreed with HM Treasury in the GAPS Withdrawal Deed that the
Company will comply with the terms of the European Commission's final decision
(see section 7.1 of Part XX ("Additional Information") of the Rights Issue
Prospectus for a summary of the GAPS Withdrawal Deed).
6 Background to GAPS
Given the extremely uncertain outlook for the UK economy at the end of 2008 and
into 2009, the Group worked with the FSA to identify and analyse the potential
impact of an extended and severe UK recession on the Group's regulatory capital
ratios. Due to the significant uncertainty at that time over the length and
depth of the recession, the Group was tested against the FSA Stress Test.
The FSA has stated that the assumptions underlying the FSA Stress Test were not
intended to be a forecast of what was likely to happen, but were designed to be
a severe economic scenario. These assumptions included a peak-to-trough fall in
UK GDP of over 6 per cent., with growth not returning until 2011 and only
returning to trend-rate growth in 2012. They also included assumptions that
unemployment would rise to just over 12 per cent, that the UK would experience
a 50 per cent peak-to-trough fall in house prices and that there would be a 60
per cent peak-to-trough fall in commercial property prices.1
The conclusion from this exercise was that the Group would need additional
capital to enable it to absorb the future impairments anticipated in such a
severe scenario.
As a result, on 7 March 2009, the Group announced its intention to participate
in GAPS in respect of certain assets with an aggregate par value of
approximately £260 billion. This announcement was made, in part, on the basis
of the term sheet published by HM Treasury on 26 February 2009, which set out
the expected key terms, conditions and operational principles of GAPS.
As consideration for entering into GAPS, it was expected that the Group would
pay a participation fee to HM Treasury of £15.6 billion, to be amortised over
an estimated seven-year period. The proceeds of this fee would have been
applied by HM Treasury in subscribing for an issue of B Shares by the Company.
In addition to the participation fee, the Group would also have had to assume
100 per cent of the losses relating to the first £35 billion of impairments
(including historical impairments and write-downs) relating to the assets
covered by GAPS (the "First Loss") and a further 10 per cent of cumulative
losses in the whole portfolio of assets thereafter, up until the date specified
as the maturity date of each covered asset.
The £15.6 billion of B Shares would have carried an annual dividend to be paid
to HM Treasury (subject to the availability of distributable reserves and any
restriction on payment of dividends that might have been required by the
European Commission) of the greater of 7 per cent of the issue price of the B
Shares and 125 per cent. of any dividend on Ordinary Shares for each period. It
was expected that the dividend payable on the B Shares would have been at least
£1.1 billion per annum, subject to the availability of distributable reserves.
The entry into GAPS was intended to provide two key benefits to the Group.
First, loss relief, particularly in a scenario of severe economic stress such
as would be implied by the FSA Stress Test. Once the First Loss had been
utilised the Group would not have been exposed to the full amount of losses it
might otherwise have incurred in respect of non-performing assets covered by
the scheme. Second, the entry into GAPS was intended to provide regulatory
capital relief (or an increase in the Group's core tier 1 capital ratio),
arising from a reduction in the Group's risk-weighted assets as well as the
generation of new core tier 1 capital through the issuance of the B Shares.
As explained in paragraph 7 of this letter, however, the Board no longer
believes that the entry into GAPS, either on the terms announced in March 2009
or on any such revised terms which the Board believes may currently be
available to the Group, is in the best economic interests of its shareholders.
1 Source: FSA statement on its use of stress tests, FSA/PN/068/2009.
7 Background to the Proposals
The Group accepts and agrees with the merits of severe stress testing of
regulatory capital, and the Proposals, together with other management actions
which the Board considers to be readily actionable, are specifically designed
to provide the capital enhancement that the Board believes is necessary to meet
the capital requirements of the FSA Stress Test. The Board believes that, since
commencing the negotiation of the terms of GAPS, the UK economy has begun to
stabilise and is now expected to return to growth in 2010. Accordingly, the
Board believes that the likelihood of the UK economy deteriorating to the
levels implied by the FSA Stress Test, the assumptions behind which remain
unchanged, is now materially lower than was the case in March 2009.
Since March 2009, the Group's core business has proved to be resilient despite
the difficult economic circumstances under which it has had to operate.
In addition, the Group has completed detailed credit reviews of the Group's
asset portfolio in accordance with the Group's risk management approach,
including, most importantly, the legacy HBOS portfolio and file-level credit
reviews of the Group's wholesale portfolio. This analysis, in conjunction with
management's view of the economic outlook for the UK, underpins the Board's
belief that the Group's overall impairments peaked in the first half of the
current year, and that overall impairments in the second half of the year will
be lower than in the first half. It also gives the Board a high level of
confidence both in the adequacy of the substantial impairments which it has
already taken against these assets (including with respect to the Group's
commercial and residential property exposures) and in the scale and timing of
expected future impairments. Further detail on Group impairments by division is
set out below, and in the Interim Management Statement (set out in full in the
appendix to Part IX ("Information on the Group") of the Rights Issue
Prospectus).
Impairments
A significant proportion of the Group's impairments to date have originated in
the Group's Wholesale division, primarily reflecting the significant and rapid
decline in commercial property prices and reducing levels of corporate cash
flow. The Group's impairments were also impacted by the exposures in certain
legacy HBOS portfolios, which were more sensitive to the downturn in the
economic environment. Having analysed the portfolio of wholesale assets, the
Board expects a significant overall reduction in the Wholesale impairment
charge in the second half of 2009, with a further improving trend in 2010.
In the Retail division, the Company has experienced a change in the mix of
impairments in the first half of 2009, as the relative weighting between
secured and unsecured impairments returned to a more normal pattern. This
change has been more positive than expected due to a variety of factors,
including: (i) a stabilising outlook for house prices (which has had a positive
impact, primarily on the secured portfolio); (ii) increasing levels of
unemployment (which has had a negative impact, primarily on the unsecured
portfolio); and (iii) lower than previously expected house repossessions as
customers benefit from the low interest rate environment and therefore lower
mortgage payments (which has had a positive impact, primarily on the secured
portfolio). In light of these trends, and management's expectations with regard
to the UK economic outlook, the Board believes that Retail impairments will
peak in the second half of 2009, with an improving trend expected in 2010.
In the Wealth and International division, the impairment charge increased in
the first half of 2009 reflecting significant provisions against the Group's
Irish and Australian commercial real estate portfolios. The Group continues to
have ongoing concerns with regard to the outlook for the Irish economy and
expects the high level of impairments to continue throughout 2009 and in 2010.
In conclusion, given its view of the economic outlook for the UK, the Board
believes that, at the Group, level the overall impairment charge has now peaked
and that the overall impairment charge in the second half of 2009 will be
significantly lower than the overall impairment charge in the first half of
2009, with a significantly improving trend thereafter.
GAPS
Since 7 March 2009, the Company has been working closely with HM Treasury to
finalise the terms and conditions and operational mechanics of the Group's
participation in GAPS. However, as these terms and conditions were being
negotiated, it became clear that the benefits of GAPS to the Group would have
been materially less extensive and that the costs to the Group of participating
in the scheme, both financially and in terms of management time, would have
been materially higher (and the impact on the Group materially more onerous)
than was anticipated by the Board at the time its intended participation in
GAPS was announced. The following issues in particular are relevant:
Capital Relief: The capital relief arising as a result of the large reduction
in risk-weighted assets would have been much lower than had been anticipated by
the Board in March 2009. This is due to various factors, including the fact
that: (i) in March 2009 significant benefit was expected to arise in respect of
the Group's Treasury assets (however, the Group has (with FSA approval)
successfully resecuritised those assets and thereby reduced the risk-weighting
of the assets); and (ii) updated, more accurate forecasting has changed the
Group's expectations of its quantum of risk-weighted assets. Further, it has
become clear to the Board that the operation of GAPS, as it would apply to the
Group, would serve to remove certain assets from coverage within a short period
after commencement of the scheme which would mean the risk-weighted asset
relief afforded by GAPS would reduce more quickly than had been anticipated by
the Board in March.
GAPS Rules: The development of the detailed scheme rules for GAPS since the
GAPS term sheet was published in February 2009 has meant that in many areas the
scheme rules are more disadvantageous for the Group than the position which had
been anticipated by the Board when it announced its initial intention to
participate. In practice, the Board believes it is highly likely that the
operation of GAPS would have been economically unsatisfactory for the Group.
For example, although it is expected that under GAPS losses relating to
restructuring events would be covered, the Group may not have benefitted from
full coverage for certain restructuring and refinancing activities.
Consideration of alternative solutions
These circumstances and improved economic conditions caused the Board to
consider alternative solutions that might provide superior economic value to
shareholders than entry into GAPS. These potential alternative solutions
included:
• renegotiating the commercial terms of GAPS, the type and quantum of assets
covered by the scheme and the scheme rules;
• not entering into GAPS at all and instead raising sufficient additional
capital on the public capital markets; or
• a combination of either of the above options.
Over the past few months, the Board has had negotiations with HM Treasury and
discussions with other relevant authorities in relation to these potential
alternatives. The Board gave careful consideration to possible alternative
formulations of GAPS, including a possible combination of a smaller version of
GAPS with elements of the Proposals. The Board concluded it would not be in the
best interests of its shareholders to pursue these alternative formulations for
the reasons set out below:
• State aid: The alternative formulations of GAPS would, in the view of the
Board, constitute additional state aid, which would likely require more severe
compensatory measures than is expected to be the case if the Proposals are
implemented;
• Uncertainty of outcome and potential delay: There was no agreement between
the Group and HM Treasury either on the general outline of any specific
alternative formulation of GAPS or on the precise commercial terms on which any
alternative formulation would have been made available to the Group. While the
Board believes that, had negotiations continued, they would have been conducted
in good faith, it had no certainty as to the outcome of such negotiations or
whether or when such negotiations would have been concluded to the parties'
mutual satisfaction, whereas the Proposals can be implemented immediately;
• Shareholder dilution: The issue of any B Shares in connection with a
renegotiated or reduced form of GAPS would still have resulted in dilution for
Ordinary Shareholders (other than HM Treasury) and would have increased the
percentage holding of HM Treasury in the Company, thereby potentially delaying
and making more difficult any eventual orderly exit by HM Treasury from its
shareholding;
• Non-market-based solution: The Board's aim is that the Group returns to
being a self-standing, wholly privately-financed institution as soon as
practicable. The Board believes that the Proposals advance this objective more
quickly and effectively than would have been the case had the Group
participated in GAPS. At the same time, the Proposals improve the quality of
the Group's capital structure in a way that is to the long-term benefit of the
Group; and
• Cost and complexity: The alternative formulations of GAPS would have
involved additional administrative and reporting structures which would, in the
Board's view, have inhibited the Group's operational and commercial
flexibility.
8 Principal terms of the Proposals
Rights Issue
The Group is proposing to raise £13.5 billion by way of the Rights Issue.
The Rights Issue is fully underwritten pursuant to the Rights Issue
Underwriting Agreement and the HMT Undertaking to Subscribe. The Issue Price at
which Qualifying Shareholders will be invited to subscribe for New Shares will
be determined by the Company and the Underwriters in advance of the General
Meeting and will be at a discount to TERP. The Issue Price is expected to be
announced on 24 November 2009, two days before the General Meeting.
Under the Rights Issue, the New Shares will be offered by way of rights to all
Qualifying Shareholders (other than, subject to certain exceptions as set out
in section 2.5 of Part VIII ("Terms and Conditions of the Rights Issue") of the
Rights Issue Prospectus, Qualifying Shareholders with a registered address or
resident in the United States or any other Restricted Jurisdictions).
Entitlements to New Shares will be rounded down to the nearest whole number and
fractions of New Shares will not be allotted to Qualifying Shareholders but
will be aggregated and the resulting New Shares will be issued to subscribers
in the market for the benefit of the Company. Holdings of Existing Qualifying
Shares in certificated and uncertificated form will be treated as separate
holdings for the purpose of calculating entitlements under the Rights Issue, as
will holdings under different designations and in different accounts.
The New Shares, when issued and fully paid, will rank pari passu in all
respects with the Existing Ordinary Shares, including the right to receive
dividends or distributions made, paid or declared (if any) after Admission of
such New Shares, as described below.
Applications will be made to the UK Listing Authority for the New Shares to be
admitted to the Official List and to the London Stock Exchange for the New
Shares to be admitted to trading on the London Stock Exchange's main market for
listed securities.
It is expected that Admission will occur, and that dealings in the New Shares
on the London Stock Exchange will commence at 8.00 a.m. on 27 November 2009.
Some questions and answers, together with details of further terms and
conditions of the Rights Issue including the procedure for application and
payment, are set out in Parts VII ("Some Questions and Answers about the Rights
Issue") and VIII ("Terms and Conditions of the Rights Issue") of the Rights
Issue Prospectus and, for Qualifying Non-CREST Shareholders, will also be set
out in the Provisional Allotment Letters and the Shareholder Guide.
Exchange Offers
The Group will generate at least £7.5 billion of core tier 1 and/or nominal
value of contingent core tier 1 capital through the Exchange Offers and/or the
related underwriting arrangements.
The Exchange Offers comprise two separate offers in respect of Existing
Securities issued by various members of the Group, as follows:
(i) an offer to be conducted in certain countries outside the United States
and will be available only to non-US persons with respect to 52 series of
Existing Securities, comprising upper tier 2 capital securities in an aggregate
principal amount of £2.52 billion, innovative tier 1 securities in an aggregate
principal amount of £7.68 billion and preference shares (or equivalents) in an
aggregate liquidation preference/principal amount of £4.09 billion; and
(ii) a separate offer to the holders of six series of Existing Securities,
comprising upper tier 2 capital securities in an aggregate principal amount of
£1.74 billion and tier 1 securities in an aggregate principal amount of £0.46
billion, which is being made in certain countries outside the United States and
to certain sophisticated holders in the United States who are "qualified
institutional buyers" as defined in Rule 144A of the Securities Act.
Certain eligible holders of the Existing Securities will be invited to offer to
exchange their Existing Securities for either: (i) Enhanced Capital Notes on a
par-for-par basis; or (ii) (in the Non-US Exchange Offer only) an Exchange
Consideration Amount (up to a limit of £1.5 billion) which shall be settled in
Ordinary Shares or, at the election of the Company, cash or, in certain
circumstances ECNs.
Eligible holders of those Existing Securities which are accepted for exchange
into the relevant Exchange Consideration Amount will receive, following a
delayed settlement period of 90 days, such Exchange Consideration Amount in the
form of Ordinary Shares or, at the election of the Company, cash (or, in the
limited circumstances described below, ECNs). The number of Ordinary Shares to
be delivered in satisfaction of such Exchange Consideration Amount shall be
based on the higher of (i) the arithmetic average of the volume-weighted
average trading price of the Ordinary Shares to be determined over a five
trading day period towards the end of the delayed settlement period (the
"VWAP") and (ii) 90 per cent. of the Ordinary Share closing price on 11
February 2010. The Company may satisfy some or all of the Exchange
Consideration Amount (being an amount up to £1.5 billion) in either cash or
Ordinary Shares, provided that the maximum number of Ordinary Shares to be
issued for this purpose will not exceed a number, the value of which is equal
to £1.5 billion (or, if the total Exchange Consideration Amount is less than
£1.5 billion, such lesser amount) divided by 75 per cent. of the Unadjusted
Conversion Price, subject to adjustment for the impact of the Rights Issue. To
the extent that the value of all such Ordinary Shares is less than £1.5
billion, holders will, on the delayed settlement date, receive ECNs on the same
par-for-par basis as described above to satisfy any such short fall.
The Exchange Offers described above are not being made by means of this
announcement or the Circular. The Non-US Exchange Offer is not being made
available to U.S. persons. The Non-US Exchange Offer is not being made,
directly or indirectly in or into, or by use of the mail of, or by any means or
instrumentality or foreign commerce of, or of any facilities of a national
securities exchange of, the United States as defined under Regulation S of the
Securities Act, or for the account or benefit of, U.S. persons.
The Exchange Offers have not been registered under the Securities Act.
Securities offered pursuant thereto may not be offered or sold within the
United States absent registration or an applicable exemption from the
registration requirement of the Securities Act.
Underwriting
The Proposals are being fully underwritten pursuant to the Underwriting
Agreements.
Rights Issue
The Rights Issue is fully underwritten pursuant to the Rights Issue
Underwriting Agreement and the HMT Undertaking to Subscribe. The New Shares
will be issued at price equal to the higher of (i) 15 pence per New Share and
(ii) a price which is within a range of 38 per cent. to 42 per cent. discount
to TERP, taking account of market conditions and other relevant factors.
Sufficient New Shares will be issued to ensure that the gross proceeds of the
Rights Issue receivable by the Company, including pursuant to the HMT
Undertaking to Subscribe, are not less than £13.5 billion. To the extent that
any New Shares are not subscribed for or are otherwise deemed not to be taken
up or placed within the Rump Placing, the Joint Bookrunners, the Senior Co -
Lead Managers and the Co-Lead Managers will severally subscribe for such number
of New Shares (excluding any New Shares to be subscribed by HM Treasury
pursuant to the HMT Undertaking to Subscribe) at the Issue Price as is required
to ensure that the gross proceeds of the Rights Issue received by the Company,
including pursuant to the HMT Undertaking to Subscribe, are not less than £13.5
billion.
A summary of the principal terms and conditions of the Rights Issue
Underwriting Agreement is set out in section 8.5 of Part XX ("Additional
Information") of the Rights Issue Prospectus.
Exchange Offers
The Exchange Offers are also fully underwritten pursuant to the Additional ECN
Issues Underwriting Agreement. This means that, to the extent that the Exchange
Offers, together with any other liability management transactions that might be
undertaken by the Group (acting reasonably and in consultation with the
Underwriters) prior to 30 April 2010, do not generate £7.5 billion or more of
core tier 1 capital and/or nominal value of contingent core tier 1 capital, the
Additional ECN Underwriters will underwrite one or more further issues of
additional ECNs in an aggregate amount sufficient to reduce such shortfall to
zero.
A summary of the principal terms and conditions of the Additional ECN Issues
Underwriting Agreement is set out in section 8.6 of Part XX ("Additional
Information") of the Rights Issue Prospectus.
Once the Resolutions relating to the Proposals have been approved, each of the
Proposals shall proceed independently of one another.
9 Impact of conversion
The ECNs will convert into Ordinary Shares in certain circumstances. This could
have the effect of materially diluting the interests of Ordinary Shareholders
at the time of any conversion. For further details on how such dilution might
impact Ordinary Shareholders, please refer to Part C of the Appendix to the
Chairman's Letter in the Circular.
10 Share Subdivision
Under the Companies Act, it is not permissible for a company to issue shares at
a discount to their nominal value, which, in respect of the Existing Ordinary
Shares is currently 25 pence per share. It is proposed that the Company carries
out the Share Subdivision which will reduce the nominal value to 10 pence per
share. This provides the Company and the Joint Bookrunners with greater
certainty that the Issue Price will be able to be set at a 38 per cent. to 42
per cent. discount to TERP irrespective of market conditions. The Board
believes that the Share Subdivision also provides the Company access to the
best available underwriting structure and terms. Although no decision has
currently been made as to the Issue Price, in no circumstances will the Issue
Price be below 15 pence. As noted in paragraph 8 of this letter, the Issue
Price is expected to be announced on 24 November 2009, two days before the
General Meeting. The Proposals are conditional on, amongst other things, the
completion of the Share Subdivision.
It is proposed that, pursuant to the Share Subdivision, each existing Ordinary
Share of 25 pence in issue at the close of business on the date of the General
Meeting will be subdivided into one ordinary share of 10 pence in the capital
of the Company (a "10p Ordinary Share") and one deferred share of 15 pence in
the capital of the company (a "Deferred Share"). The purpose of the issue of
Deferred Shares is to ensure that the reduction in the nominal value of the
Ordinary Shares does not result in a reduction in the capital of the Company.
Each Ordinary Shareholder's proportionate interest in the Company's issued
ordinary share capital will remain unchanged as a result of the Share
Subdivision. Aside from the change in nominal value, the rights attaching to
10p Ordinary Shares (including voting and dividend rights and rights on a
return of capital) will be identical in all respects to those of existing
Ordinary Shares. No new share certificates will be issued in respect of the 10p
Ordinary Shares as existing share certificates for existing Ordinary Shares
will remain valid in respect of the same number of 10p Ordinary Shares arising
from the Share Subdivision. The number of Ordinary Shares of the Company listed
on the Official List and admitted to trading on the London Stock Exchange's
main market for listed securities shall not change as a result of the Share
Subdivision. The Share Subdivision will not affect the Group's or the Company's
net assets. Consequently, the market price of a 10p Ordinary Share immediately
after completion of the Share Subdivision should, theoretically, be the same as
the market price of an Ordinary Share immediately prior to the Share
Subdivision.
In addition, it is proposed that, pursuant to the Share Subdivision and as
required by Article 3.1.4(i) of the Articles of Association, each existing
Limited Voting Share of 25 pence in issue at the close of business on the date
of the General Meeting will be subdivided into one limited voting share of 10
pence (a "10p Limited Voting Share") and one Deferred Share. Aside from the
change in nominal value, the rights attaching to 10p Limited Voting Shares will
be identical in all respects to those of existing Limited Voting Shares. No new
share certificates will be issued in respect of the 10p Limited Voting Shares
as existing share certificates for existing Limited Voting Shares will remain
valid in respect of the same number of 10p Limited Voting Shares arising from
the Share Subdivision.
The Deferred Shares created on the Share Subdivision becoming effective will
have no voting or dividend rights and, on a return of capital on a winding up
of the Company, will have the right to receive the amount paid up thereon only
after Ordinary Shareholders have received, in aggregate, any amounts paid up
thereon plus £10 million per Ordinary Share.
No share certificates will be issued in respect of the Deferred Shares, nor
will CREST accounts of shareholders be credited in respect of any entitlement
to Deferred Shares, nor will they be admitted to the Official List or to
trading on the London Stock Exchange or any other investment exchange. The
Deferred Shares shall not be transferable at any time, other than with the
prior written consent of the Directors. The rights attaching to, and
restrictions upon, the Deferred Shares are set out in Resolution 6.
At the appropriate time, the Company may repurchase the Deferred Shares, make
an application to the High Court for the Deferred Shares to be cancelled, or
cancel, or seek the surrender of the Deferred Shares using such other lawful
means as the Directors may determine.
11 Integration of HBOS and synergies update
The Group has completed the planning of its key integration activities and the
execution of a broad range of over 100 integration programmes is well underway
just over nine months after the acquisition of HBOS. The Board is pleased with
the progress made so far and remains confident that the Group will meet its
commitment to deliver cost synergies and other operating efficiencies from the
Acquisition of greater than £1.5 billion per annum by the end of 2011,
notwithstanding the business impact of the expected state aid remedies as
referred to in paragraph 5 of this letter. The Company's unaudited interim
results announcement on 5 August 2009 highlighted that over £100 million of
cost synergies were realised by the Group in the first half of 2009. On the
basis of first half initiatives and programmes to be implemented during the
second half of the financial year, the Group expects to finish 2009 with
annualised run-rate cost savings of £750 million.
The integration of such a large enterprise as HBOS inevitably takes time, but
once the full extent of the benefits of such integration are realised,
particularly in light of the Group's view that the economic environment in the
UK has begun to stabilise, the Board believes the Group will be in a strong
position to create significant value for you, our shareholders.
12 Current trading, trends and prospects
On 5 August 2009, Lloyds Banking Group announced its interim results for the
half year ended 30 June 2009. Despite the significant impairments which were
announced at that time, the Group was able to demonstrate the continued
resilience of its core business.
As announced in the Interim Management Statement, the Group has continued to
deliver a good revenue performance in the third quarter of 2009, with similar
trends, excluding gains on liability management, to those delivered in the
first half of the year. The Group's banking net interest margin has shown clear
signs of stabilising in the third quarter of 2009, compared to the first half
of the year. The Group continues to deliver a strong cost performance and, in
addition, the Board feels that excellent progress has continued to be made on
the integration of the enlarged Group, with the achievement of a higher
run-rate of cost synergies than those previously announced. The overall
run-rate of impairments has slowed in the third quarter of the year. As a
result, the Group continues to expect impairments to fall significantly in the
second half of 2009, compared to the first half of the year. As previously
announced, the Group continues to expect to report a loss before tax for 2009,
excluding the impact of the £11.2 billion credit relating to negative goodwill.
As reported in the Interim Results News Release, the Group has identified
approximately £300 billion of assets associated with non-relationship lending
and investments, including business which is outside its current risk appetite,
which may have been earmarked for GAPS protection were the Group to participate
in the scheme. The Group's approach to managing these assets would be the same
whether or not it moves forward with the Proposals or participates in GAPS. It
is the Group's intention to manage such assets for value and run them down over
time given the current economic climate. Over the next five years, the Group
expects to achieve a reduction in such assets of approximately £200 billion,
which equates to approximately 20 per cent of the Group's total balance sheet
assets as at 30 June 2009. The impact of running down those assets is not
expected to have a materially negative impact on the Group's income over the
five year period.
The full text of the Interim Management Statement is set out on pages 109 to
111 of the Rights Issue Prospectus.
13 Group capital and liquidity policies
In September 2008, the Group set out a target that its core tier 1 capital
ratio be in the range of 6 to 7 per cent. Reflecting the increase in expected
levels of core tier 1 capital across the industry since that time, the Board's
target has now been increased to be more than 7 per cent.
As discussed above, the Rights Issue will raise a total of £13.5 billion of
core tier 1 capital before expenses of the Proposals and before the making of
the GAPS Payment. Had the Rights Issue been completed as at 30 June 2009, this
would have resulted in a pro forma core tier 1 capital ratio for the Group of
approximately 8.6 per cent. after expenses of the Proposals and the GAPS
Payment. Further details on the Group's capital resources and liquidity can be
found in Part XV ("Capital Resources") of the Rights Issue Prospectus.
14 Working Capital
The Company is of the opinion that, after taking into account existing
available bank and other facilities, the Exchange Offers and the net proceeds
of the Rights Issue, the Group has sufficient working capital for its present
requirements, that is, for at least the next 12 months from the date of this
announcment.
15 Dividends and dividend policy
As a result of the expected state aid remedies referred to in paragraph 5 of
this letter, the Company expects to be prevented from making discretionary
(contractually deferrable or waivable) coupon and dividend payments on hybrid
capital securities or making voluntary calls on such securities from 31 January
2010 until 31 January 2012. Should the Group be prevented from making such
payments, the Company will be restricted by the terms of such hybrid capital
securities from paying dividends on its Ordinary Shares for the duration of
such restrictions. However, the Board intends to resume dividend payments on
its Ordinary Shares as soon as market conditions and the financial position of
the Group permit, subject to the expiry of the restrictions outlined above. See
also the risk factor described in section 1.5 of Part II ("Risk Factors") of
the Rights Issue Prospectus.
16 Lloyds Banking Group General Meeting
The Proposals are conditional upon the approval of the Proposals Resolutions by
the Ordinary Shareholders at the General Meeting. These Resolutions, together
with other Resolutions intended to update the Directors' authorities to allot
shares generally and on a non-pre-emptive basis, to effect a capitalisation
issue for holders of Limited Voting Shares as required by the Articles, and to
buy back certain 6.3673 per cent. preference shares in order to simplify the
Group's capital structure, are set out in the notice convening a General
Meeting of the Company to be held on 26 November 2009 at Hall 12, The Atrium,
National Exhibition Centre, Birmingham B40 1NT at 11:00 a.m., which is set out
at the end of the Circular. Further details of the Resolutions proposed to be
passed at the General Meeting are set out in the notice. The purpose of the
General Meeting is to consider and, if thought fit, pass the Resolutions, a
summary of which is set out in Part B of the Appendix to the Chairman's Letter
in the Circular.
As mentioned in paragraph 4 above, since the HMT Transactions involve Lloyds
Banking Group's substantial shareholder, HM Treasury (which at 30 October 2009,
(being the last practicable date prior to the date of the Circular) indirectly
held 11,798,531,471 Ordinary Shares, representing approximately 43.4 per cent.
of the issued ordinary share capital of the Company), they are related party
transactions for the purposes of the Listing Rules. Therefore, as required by
the Listing Rules, the HMT Transactions are conditional on the approval of
Resolution 4 by the Ordinary Shareholders (other than HM Treasury, which, in
accordance with the Listing Rules, may not vote on Resolution 4 and has agreed
to take all reasonable steps to ensure that its associates, if any, do not vote
on Resolution 4).
17 Use of proceeds
The primary motive behind the Proposals is to raise core tier 1 and contingent
core tier 1 capital, and as such any net cash proceeds will be used in the
day-to-day operations of the Group. The proceeds raised and/or capital
generated from the Rights Issue are expected to, in aggregate, increase the
Group's core tier 1 capital ratio by approximately 230 basis points to around
8.6 per cent on a pro forma basis as at 30 June 2009 taking into account
expenses of the Proposals and the GAPS Payment.
18 Action to be taken by Ordinary Shareholders
A Form of Proxy is enclosed which covers the Resolutions to be proposed at the
General Meeting and which is for use by the holders of Ordinary Shares. If you
are a person nominated under section 146 of the 2006 Act to enjoy information
rights, please read Note 2 to the Notice of General Meeting.
Completed Forms of Proxy should be returned in accordance with the instructions
printed on them as soon as possible, but in any event no later than 11.00 a.m.
on 24 November 2009. In addition, it is possible to appoint and instruct your
proxy electronically by following the instructions on the enclosed Form of
Proxy. Completion of a Form of Proxy will not prevent you from attending and
voting at the General Meeting if you so wish. To appoint more than one proxy
(each of whom must be appointed to exercise rights attached to the different
shares held by you), see Note 3(b) on the reverse of the Form of Proxy.
At the General Meeting, the Company will disclose, for each Resolution, the
total of the proxy votes received and any votes cast at the meeting, the
proportion for and against each Resolution, and the number of votes withheld.
Votes withheld will not be counted in the calculation of the proportion of
votes `for' and `against' a Resolution.
Voting at the General Meeting in respect of each Resolution will be conducted
by way of a poll. The Directors believe it is important that the intentions of
all members who register a vote are fully taken into account. Voting on a poll
is more transparent and equitable, since it allows the votes of all
shareholders who wish to vote to be taken into account, and it reflects
evolving best practice. Ordinary Shareholders who attend the meeting will still
be able to ask questions relevant to the business of the meeting prior to
voting on the Resolutions.
19 Fees and Expenses relating to the Proposals
Fees and expenses relating to the Proposals are expected to be approximately
£500 million.
20 Further information
Your attention is drawn to the further information set out in Parts A, B and C
of the Appendix to the Chairman's Letter in the Circular. You should read the
whole of the Circular and not rely solely on the information set out in this
announcement or the Chairman's Letter in the Circular.
21 Consents
Merrill Lynch, whose address is Merrill Lynch Financial Centre, 2 King Edward
Street, London EC1A 1HQ, has given and has not withdrawn its written consent to
the inclusion in the Circular of references to its name in the form and context
in which they appear.
UBS, whose address is 1 Finsbury Avenue, London EC2M 2PP, has given and has not
withdrawn its written consent to the inclusion in the Circular of references to
its name in the form and context in which they appear.
J.P. Morgan Cazenove, whose address is 20 Moorgate, London EC2R 6DA, has given
and has not withdrawn its written consent to the inclusion in the Circular of
references to its name in the form and context in which they appear.
22 Importance of the Vote
The Board believes that the Proposals provide a more attractive alternative to
participating in GAPS and offer superior economic value to shareholders. Should
any of the Proposals Resolutions (which include the resolution to approve the
HMT Transactions) not be approved by the relevant Ordinary Shareholders, the
Proposals will not proceed. Should the Proposals not proceed, the Group may not
be able to meet the regulatory capital ratios required to be maintained by the
FSA in the medium and long term and, should that be the case, will need to
raise additional capital. For the avoidance of doubt, should any of Resolutions
3, 5, 10 and 12 not be approved by Ordinary Shareholders, the Proposals may
still proceed.
The options available to the Board in such circumstances are not yet clear.
However, it is highly likely that the Group would need to reopen discussions
with HM Treasury regarding its possible participation in GAPS or approach the
UK Government for alternative support, although there can be no assurance that
the Group would be permitted to enter into GAPS, or what form any alternative
UK Government support may take. Furthermore, there can be no certainty that any
such participation by the Group in GAPS would not be on terms which are more
onerous to the Company than the terms announced in March 2009. In addition,
such participation or alternative support could require additional state aid
remedies. If the Group were permitted to participate in GAPS in these
circumstances, it would seek to finalise the terms of its participation as soon
as practicable, although there can be no assurance that it would be possible to
do so in the near future.
23 Directors' Recommendation
The Board, which has been so advised by Merrill Lynch and UBS, considers that
the HMT Commitment Commission payable in relation to HM Treasury's entry into
the HMT Undertaking to Subscribe (proposed in Resolution 4 and which is a
related party transaction for the purposes of the Listing Rules) is fair and
reasonable so far as shareholders are concerned. In providing their advice,
Merrill Lynch and UBS have taken into account the Board's commercial
assessments.
The Board, which has been so advised by J.P. Morgan Cazenove, considers that
the GAPS Payment (proposed in Resolution 4 and which is a related party
transaction for the purposes of the Listing Rules) is fair and reasonable so
far as shareholders are concerned. In providing their advice, J.P. Morgan
Cazenove has taken into account the Board's commercial assessments.
Shareholders are reminded of the importance of the disclosure contained in
paragraph 4 above.
The Board considers that the Resolutions are in the best interests of Ordinary
Shareholders taken as a whole and accordingly unanimously recommends that
Ordinary Shareholders vote in favour of the Resolutions to be put to the
General Meeting as they intend to do, or procure, in respect of their own
beneficial holdings at the time of the General Meeting.
Yours faithfully,
Sir Winfried Bischoff
Chairman
Expected timetable of principal events
(Each of the times and dates in the table below is indicative only and may be
subject to change)
Record Date for entitlement under the Rights Issue for Qualifying CREST
Shareholders and Qualifying Non-CREST Shareholders and for holders of Limited
Voting Shares for the LVS Capitalisation Issue
close of business on 20 November 2009
Announcement of Issue Price and entitlements of Qualifying Shareholders
7.00 a.m. on 24 November 2009
Latest time and date for receipt of Forms of Proxy for the General Meeting
11.00 a.m. on 24 November 2009
General Meeting
11.00 a.m. on 26 November 2009
Share Subdivision becomes effective
4.30 p.m. on 26 November 2009
LVS Record Date for entitlement under the Rights Issue for Qualifying LV
Shareholders
4.30 p.m. on 26 November 2009
Despatch of Provisional Allotment Letters (to Qualifying Non-CREST Shareholders
only)
26 November 2009
Start of subscription period
26 November 2009
Admission
8.00 a.m. on 27 November 2009
Dealings in New Shares, nil paid, commence on the London Stock Exchange
8.00 a.m. on 27 November 2009
Existing Ordinary Shares marked "ex-rights" by the London Stock Exchange
8.00 a.m. on 27 November 2009
Nil Paid Rights credited to stock accounts in CREST (Qualifying CREST
Shareholders only)
8.00 a.m. on 27 November 2009
Nil Paid Rights and Fully Paid Rights enabled in CREST
8.00 a.m. on 27 November 2009
Recommended latest time for requesting withdrawal of Nil Paid Rights and Fully
Paid Rights from CREST (i.e. if your Nil Paid Rights and Fully Paid Rights are
in CREST and you wish to convert them to certificated form)
3.00 p.m. on 4 December 2009
Latest time for depositing renounced Provisional Allotment Letters, nil or
fully paid, into CREST or for dematerialising Nil Paid Rights or Fully Paid
Rights into a CREST stock account (i.e. if your Nil Paid Rights and Fully Paid
Rights are represented by a Provisional Allotment Letter and you wish to
convert them to uncertificated form)
3.00 p.m. on 8 December 2009
Latest time and date for splitting Provisional Allotment Letters, nil or fully
paid
3.00 p.m. on 9 December 2009
Latest time and date for acceptance, payment in full and registration or
renunciation of Provisional Allotment Letters
11.00 a.m. on 11 December 2009
Dealings in New Shares, fully paid, commence on the London Stock Exchange
8.00 a.m. on 14 December 2009
New Shares credited to CREST accounts
by 14 December 2009
Despatch of definitive share certificates for the New Shares in certificated
form
by 29 December 2009
Notes:
(1) The ability to participate in the Rights Issue is subject to certain
restrictions relating to Ordinary Shareholders with registered addresses
outside the United Kingdom, details of which are set out in Part VIII ("Terms
and Conditions of the Rights Issue") of the Rights Issue Prospectus.
(2) The above times and dates are indicative only. The times and dates set out
in the expected timetable of principal events above and mentioned throughout
this document may be adjusted, in which event details of the new times and
dates will be notified to the FSA, the London Stock Exchange and, where
appropriate, Qualifying Shareholders.
(3) If you hold your Existing Ordinary Shares through one of the Lloyds Banking
Group Employee Share Plans or a CREST nominee, please note that certain of the
latest dates set out in the timetable above may not be applicable to you. Where
this is the case, the latest such dates which are applicable to you will be set
out in your Provisional Allotment Letter or advice from your service provider.
(4) References to times in this announcement are to London times unless
otherwise stated.
The Lloyds Banking Group Directors accept responsibility for the information
contained in this announcement. To the best of the knowledge and belief of the
Lloyds Banking Group Directors (who have taken all reasonable care to ensure
that such is the case) the information contained in this announcement is in
accordance with the facts and does not omit anything likely to affect the
import of such information.
This announcement does not constitute an offer to sell, or a solicitation of an
offer to subscribe for, the securities being issued in any jurisdiction in
which such offer or solicitation is unlawful.
This announcement is not for distribution, directly or indirectly, in or into
the United States, Hong Kong, Israel, Japan, Thailand or any other state or
jurisdiction in which it would be unlawful to do so. This announcement does not
constitute or form a part of any offer or solicitation to purchase or subscribe
for securities in the United States. The securities mentioned herein (the
"Securities") have not been, and will not be, registered under the United
States Securities Act of 1933 (the "Securities Act"). The Securities may not
be offered or sold in the United States absent registration or an applicable
exemption from the registration requirements of the Securities Act. There will
be no public offer of the Securities in the United States, and the Securities
have not been approved or disapproved by the US Securities and Exchange
Commission, any state securities commission in the United States, or any US
regulatory authority, nor have any of the foregoing authorities passed upon or
endorsed the merits of the offering or the Securities or the accuracy or
adequacy of any of the documents or other information contained therein.
One of the exchange offers referred to herein is not being made, and will not
be made, directly or indirectly, in or into, or by use of the mail of, or by
any means or instrumentality of interstate or foreign commerce of or of any
facilities of a national securities exchange of, the United States or to, or
for the account or benefit of, U.S. persons. This includes, but is not limited
to, facsimile transmission, electronic mail, telex, telephone and the internet.
Accordingly, copies of this announcement and any other documents or materials
relating to such exchange offer are not being, and must not be, directly or
indirectly, mailed or otherwise transmitted, distributed or forwarded
(including, without limitation, by custodians, nominees or trustees) in or into
the United States or to U.S. persons.
This announcement does not constitute a prospectus or prospectus equivalent
document. Nothing in this announcement should be interpreted as a term or
condition of any of the Proposals. Prospectuses relating to the Rights Issue
and the Exchange Offers will be prepared and made available in accordance with
EU Directive 2003/71/EC and/or Part VI of the Financial Services and Markets
Act 2000. Any decision to invest in Lloyds Banking Group under the Proposals
must be made only on the basis of the information contained in and incorporated
by reference into the prospectuses. The prospectuses, when published, will be
available on the website of Lloyds Banking Group (www.lloydsbankinggroup.com)
and in hard copy from the Lloyds Banking Group's registered office or by
calling 0871 384 2990.
Neither the content of Lloyds Banking Group's website nor any website
accessible by hyperlinks on Lloyds Banking Group's website is incorporated in,
or forms part of, this announcement.
The distribution of this announcement and/or any other documents related to any
offering of securities or the transfer or offering of securities into
jurisdictions other than the United Kingdom ('UK') may be restricted by law.
Persons into whose possession this announcement comes should inform themselves
about and observe any such restrictions. Any failure to comply with these
restrictions may constitute a violation of the securities laws of any such
jurisdiction.
This announcement has been prepared for the purposes of complying with
applicable law and regulation in the UK and the information disclosed may not
be the same as that which would have been disclosed if this announcement had
been prepared in accordance with the laws and regulations of any jurisdiction
outside of the UK.
This announcement includes certain forward looking statements with respect to
the business, strategy and plans of the Company or the Group and its current
goals and expectations relating to its future financial condition and
performance. Statements that are not historical facts, including statements
about the Group's or the Group's management's beliefs and expectations, are
forward-looking statements. Words such as 'believes', 'anticipates',
'estimates', 'expects', 'intends', 'aims', 'potential', 'will', 'would',
'could', 'considered', 'likely', 'estimate' and variations of these words and
similar future or conditional expressions are intended to identify
forward-looking statements but are not the exclusive means of identifying such
statements. By their nature, forward-looking statements involve risk and
uncertainty because they relate to events and depend upon circumstances that
will occur in the future.
Examples of such forward-looking statements include, but are not limited to,
projections or expectations of profit attributable to shareholders, provisions,
economic profit, dividends, capital structure or any other financial items or
ratios; statements of plans, objectives or goals of the Group or its
management; statements about the future trends in interest rates, foreign
exchange rates, stock market levels and demographic trends and any impact on
the Group; statements concerning any future UK or other economic environment or
performance including in particular any such statements included in this
announcement or its annual report; statements about strategic goals,
competition, regulation, disposals and consolidation or technological
developments in the financial services industry; and statements of assumptions
underlying such statements.
Factors that could cause actual results to differ materially from the plans,
objectives, expectations, estimates and intentions expressed in such
forward-looking statements made by the Group or on the Group's behalf include,
but are not limited to, general economic conditions in the UK and
internationally; inflation, deflation, interest rates, policies of the Bank of
England and other G8 central banks, exchange rate, market and monetary
fluctuations; changing demographic developments including mortality and
changing customer behaviour including consumer spending, saving and borrowing
habits, borrower credit quality, technological changes, natural and other
disasters, adverse weather and similar contingencies outside the Group's
control; inadequate or failed internal or external processes, people and
systems; terrorist acts, other acts of war, geopolitical, pandemic or other
such events; changes in laws, regulations, taxation, government policies or
accounting standards or practices, exposure to regulatory scrutiny, legal
proceedings or complaints, changes in competition and pricing environments; the
inability to hedge certain risks economically; the adequacy of loss reserves;
the ability to secure new customers and develop more business from existing
customers; the ability to achieve value-creating mergers and/or acquisitions at
the appropriate time and prices and the success of the Group in managing the
risks of the foregoing; the ability to derive cost saving and other benefits as
well as to mitigate exposures from the HBOS acquisition.
The Group may also make or disclose written and/or oral forward-looking
statements in reports filed with or furnished to the SEC, the Company's annual
reviews, half yearly announcements, proxy statements, offering circulars,
prospectuses, press releases and other written materials and in oral statements
made by the directors, officers or employees of the Group to third parties,
including financial analysts.
Except as required by the FSA, the London Stock Exchange, the Listing Rules,
the Prospectus Rules, the Disclosure and Transparency Rules or any other
applicable law or regulation, the forward-looking statements in this
announcement are made as of the date hereof, and the Company expressly
disclaims any obligations or undertaking to release publicly any updates or
revisions to any forward-looking statements contained in this announcement or
incorporated by reference into this announcement to reflect any change in the
Company's expectations with regard thereto or any change in events, conditions
or circumstances on which any such statement is based.
Merrill Lynch, UBS, Citi, Goldman Sachs, HSBC and J.P. Morgan Cazenove are each
acting for Lloyds Banking Group in connection with the Proposals and no-one
else and will not be responsible to anyone other than Lloyds Banking Group for
providing the protections afforded to their respective clients nor for
providing advice in relation to the Proposals and/or any other matter referred
to in this announcement. Credit Suisse Securities (Europe) Limited and
Deutsche Bank AG are acting as financial advisor for HM Treasury and UKFI in
connection with the Proposals and will not be responsible to anyone other than
HM Treasury and UKFI for providing advice in relation to the Proposals and/or
any other matter referred to in this announcement.
This information is provided by RNS
The company news service from the London Stock Exchange
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Lloyds Banking Group plc ('Lloyds Banking Group') today announces proposals intended to meet its current and long-term capital requirements
| Source: Bank of Scotland