UK banking chaos continues

Posted on | November 24, 2009 | No Comments

Devaluation fears for Lloyds shareholders

Lloyd’s Bank are issuing shares to their existing shareholders at well below the current trading price of such shares.

The 37p price is a discount of 38.6% on the so-called theoretical ex-rights price – which takes into effect the number of new shares on the market.

A total of 36.5 billion new shares will be issued – that amounts to 1.34 new shares for every one already in existence.

The sheer number of new shares has raised fears that the value of each one will be diluted.

Robert Talbot from Royal London Asset Management said the company’s fate is ultimately linked to the performance of the UK economy.

“I think it puts them into a much stronger capital position to be able to withstand whatever lies ahead. The crucial question facing the bank over the next two to three years is what happens to the UK economy,” he said.

Previous bad news for Lloyds shareholders:
http://news.bbc.co.uk/1/hi/business/8347400.stm

First of all, their hand is being forced because Lloyds is very likely to stop making regular payments to holders of its preference shares.

This is because the European Commission does not want a taxpayer supported company paying money to its creditors.

Secondly, anyone whose holdings are worth less than £1,000 will not be eligible to exchange their preference shares.

This has the effect of excluding some 120,000 investors from the exchange offer, although Lloyds has insisted that a cash offer will eventually be made to these people.

News on the re-introduction of capital punishment for fat cats is still pending …

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