Lloyds to raise £4bn as Blank checks out

Lloyds shares jump as the bank announces a £4bn cash call, and the departure of chairman Sir Victor Blank.

Last Updated: 31 Aug 2010

More good news for shareholders of Lloyds Banking Group this morning: after announcing the departure of much-maligned chairman Sir Victor Blank this weekend, Lloyds said today that it’s launching a £4bn cash call to buy back the Government’s preference shares. Investors will be able to buy the new shares at 38.43p each – less than half the current market price – and if they don’t, they’ll get a cheque for the proceeds gained by selling the remaining shares on the open market. And given the 6% bounce in the stock price this morning, it looks shareholders are pretty pleased with both moves...

Sir Victor finally fell on his sword this weekend, after taking flak for months about the disastrous losses Lloyds has suffered since its shotgun marriage with HBOS. The final straw for Blank seems to have been an indication from UKFI (the Government body that manages our bank investments) that it would vote against his re-election next month – and since it controls 43% of the bank’s shares, that would have left Sir Victor high and dry. This might seem odd, given that PM Gordon Brown personally backed the Lloyds/ HBOS merger – so either UKFI is acting independently of its paymasters, or the PM is washing his hands of his old chum now his popularity has plummeted. Hmmm, which of those sounds more likely?

Sir Victor still thinks the deal will come good: ‘This remains – in the medium term – a unique value-enhancing opportunity,’ he jargoned yesterday. And he may well be right: once the market recovers, and the Government is paid off, the combined group will be left with a huge share of a considerably reduced UK banking market (no more pesky Icelandic banks, for instance). Nonetheless, the suspicion remains that Blank (and his CEO Eric Daniels, the ‘Quiet American’ who, as usual, is keeping his head down) rushed the HBOS deal through without doing their homework properly.

Meanwhile Lloyds is taking its first step towards righting itself by attempting to buy back the Treasury’s £4bn preference shares – thus saving itself about £500m a year in special dividend payments. But much depends on whether the bank’s 2.8m shareholders take up the cash-call rather than pocketing the cheque (and opinion seems split on this point). Since the Treasury is underwriting the deal, it could yet end up with a majority stake – possibly even as much as 65%.

Nor will it be easy for Lloyds to find a replacement chairman. Lord Leitch, the former boss of Zurich Financial Services, has been promoted to deputy chairman, so he’s in the box seat. But there aren’t many candidates around with relevant experience whose reputation has survived the recent crisis intact. Ex-Citigroup chairman Sir Win Bischoff, one of those linked, surely isn’t one of them...

In today's bulletin:

Lloyds to raise £4bn as Blank checks out
Former Economist boss becomes CBI's first female president
Bosses having sleepless nights over the recession
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MT Expert's Ten Top Tips: Marketing on a shoestring

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