Lloyds share price rises after it wins ECN bonds case in appeals court
Lloyds shares rose today, after a court of appeal sided with the bank over its request to buy back special high-interest bonds, which were issued during the height of the financial crisis.
Lloyds sold the enhanced capital notes (ECNs) to retail investors shortly after it was bailed out by the government in 2009, boosting its capital buffer. The notes could be converted into cash if Lloyds' capital ratio fell below a certain level.
Read more: Lloyds to appeal against loss in £1bn bond buy back court case
But regulatory changes meant that the ECNs no longer count towards the bank’s capital buffer, leading Lloyds to invoke a "capital disqualification clause", in order to buy back the bonds at face value.
Buying back the bonds would enable the bank to save £200m annually over the next five years, as it wouldn’t have to pay bondholders the interest rate of between six and 16 per cent.
Nevertheless bondholders, who stood to lose out financially, had argued that the trigger to exchange the notes had not been met.
A high court judge initially ruled against Lloyds in June, saying the trigger to exchange the notes had not been met because the ECNs could qualify as capital in future stress tests. But today's verdict has overturned this.
Their next option would be to submit a request to the court of appeal itself.