Member Info for Hounddog10

That is rather how I see it. There is a certain amount of hedge between there being actual/impending bad news for Lloyds and the ability to buy back at a low price thereby giving increased capacity to up the dividend. Obviously the ability to buy back is dependent on results not being too bad. The buyback will, in time, show through. Unfortunately it may take quite a bit of time but there will be a year when Lloyds is no longer battered by “one-offs”. I thought it would be 2024. I think the BoD did as well because they had moved conduct remediation expense back into “underlying” profit which now is no longer going to be as smooth as they would have hoped.

I think the reason they took the £450m car loans hit is likely because of the Telegraph provision write back, which it now transpires was £700m. This unexpected windfall meant they had extra capacity to take hits in 2023 and so help shield the 2024 p&l and capital availability. I suspect it also meant they could pay the remaining £250m pension deficit payment early in December 2023. Rather neatly adds up to £700m. Perhaps too neat.

The car stuff could get messy. These types of issue tend to get worse rather than better. I would hope though it is anchored around the £2bn rather than the wilder estimates. I also hope, if there has to be redress, the FCA learns from PPI and stops an open-ended free for all. So time limit to claim eg two years and eg requiring claims companies to put up deposits for each claim only refundable if the claim is successful. That would stop them putting in fraudulent and duplicate claims where the admin burden falls on the banks.

I should correct myself. The 29th is the court MEETING the court HEARING is after that. Apologies.

The vote concludes on the 27th - two votes - one on the Scheme and the other for a AGM resolution connected to the Scheme. One vote is by 1pm, the other by 1.15pm. The 29th is the court hearing where the result of the vote is formally announced.

The ADRs are best seen as an overlay on the underlying UK shares. They are not extra shares. As hardup’s post notes they are on a 1 for 4 basis. When the ADRs were created no new UK shares were created and if the ADR programme was to be cancelled no UK shares would be cancelled.

ADRs are just a veneer so US investors are presented with a share denominated in USD and pays dividends in USD. Most investors (certainly the non institutional ones) prefer to deal in their local currency.

One aspect of the results to note is that they have more or less used up surplus capital (which they still say will be distributed based on end 2024 ie in February 2025). Their pro forma CET1 capital ratio (page 56 of the Annual Report) is 13.7% and they aim for 13.5%. Still the surplus 0.2% is worth about £0.5bn which likely will be spent on cars but may just come back to shareholders.

Magoo79

Thank you. I am afraid it is rather difficult to know and I am not sure I have more insight than anyone else. You are right that if voted down the share price will likely dip and so might seem to present an attractive entry point for a new bidder to bid with a premium. However, if it does get voted down the shareholders are really saying that something over 13.5p is our baseline. So that remains the starting point for a newcomer. I think perhaps the best reason for a new bidder to come in after the vote would be that the balance of votes of YES v NO will be known and equally importantly have information on how many shareholders who are likely to vote.

I think as time goes by a counterbid looks less likely and I worry, as others are saying, that there is something behind the scenes that trade bidders are aware of which acts as a deterrent to a non-Patel bid. I can (just about) understand that the board might justify to itself recommending the Patel deal on the basis that it was higher than the then share price (although Zurrin has constantly pointed out that Shanta is very undervalued) but my concern is that two of the big investors have gone along with it. In particular Sustainable Capital was in for the long term. It is also rather strange that none of the three previous bidders are back. One wonders whether conversations at that time have led to some sort of behind the scenes deal now.

I think our best hope is that the Patels up their bid. If they do, I think it is likely they will do that shortly. I am not entirely sure if they are able to up their bid after a failed vote - although I think so.

Stunned that they took a provision for the car loans. How can they possibly know the number when the FCA hasn’t reported yet? They even say in the explanation for the provision that they think they were compliant with the rules at the time. Under accounting standards you are only allowed to put up a provision when the loss is “incurred” (although some leeway as to how that is defined). Problem is it will encourage the FCA to go for redress.

Otherwise as expected. They paid the £250m remaining pension deficit payment in December, so at least that is now dealt with.

They can’t put up a provision as they have no idea what the FCA will conclude. Conceivably the FCA might say no redress required (unlikely) and there is no liability. No longer allowed to put up “big bath” provisions. They will, however, be factoring it into what distributions to shareholders they will announce tomorrow.

LTI. It will need a new home but it could go in any number of directions in Lloyds’ balance sheet. Of course only the £500m affects profit and what can be distributed (leaving aside impact on RWAs).

They extended a loan for £1.2m. When things looked as though they were going wrong they put a £500m provision against the loan ie they assumed they would only be repaid £700m and carried the loan at that amount in the balance sheet. However, now they are getting all the £1.2m back in cash they can release the £500m provision back to the p&l. That is a credit to the p&l. Effectively they are getting back £500m more than they expected.

I understand that the loan extended was for £1.2m. The loan loss provision against this has been variously reported in the press as £500m and £650m. It is the reversal of the loan loss provision that is the “profit” that goes into the treasure chest not the full loan amount of £1.2m

Atanarjuart0

The timetable is set out on page 13 of the Scheme Document (on Shanta’s website). If the Patels succeed on the vote as formalised at the Court Meeting on 29 February the next stage is the Court Hearing to approve the Scheme. This date (day D) is not yet known as it depends on various preconditions being fulfilled, many of them regulatory clearances in Tanzania and Kenya. My guess is that the Court Hearing will happen no earlier than end March and possibly later. It is unknowable if there might be one precondition that may be slow to get sorted out. I think these schemes are nearly always approved by the Court and a day afterwards the shares are removed from AIM and cannot be traded. Roughly 14 days after that the cash has to be paid out to investors. The announcement said that they expected the deal to complete in H1 and I think sometime in May is a reasonable guess at this stage.

If the Patels are forced to raise their offer I think this will constitute a major amendment to the Scheme and there will be a need for a new vote which requires three week notice (I think technically the Court has discretion to allow amendments to the Scheme without a new vote but I doubt they will do that). This does not necessarily push the timetable out a full three weeks because the constraint is the Court Hearing date.

If the Patels switch from a Scheme to contractual offer or a counterbid comes in then things become much more complicated and the timetable will likely be pushed out much further (but the bid price should have gone up).

Until the date of the Court Hearing (technically the day after) the shares can be traded and SUBJECT TO LIQUIDITY ie willing buyers, shares can be sold. This is likely to be at a smallish discount to whatever bid price is out there and deemed to go through.

It has to be borne in mind that if the Patels are voted down and there is no upped offer from them or a counterbid, the shares may in the short term fall as we have lost the 13.5p underpin, will be without a CEO and have a somewhat discredited board. In the medium term we would hope for good drilling results and cash piling up in the balance sheet to bolster the share price.

This is NOT advice - just a description of some of the process and certain events that could happen. If it is important then people should get professional advice.

I think it is the institutional investors themselves that pay ISS/Glass so I don’t think there is a conflict there.

It is a very peculiar RNS. Never seen anything like it before. My guess is that it is aimed at private investors because the institutions signed up to these two proxy voting advisers will get their recommendations direct.

Some enterprising former train driver has started up the night mail train again. But this time for parcels. He is looking to work with Royal Mail.

https://www.thetimes.co.uk/article/return-of-the-night-mail-train-delivering-online-shopping-at-100mph-sfjmjf7ms

Royal Mail looking to get bulk senders of letters (seven out of ten) to agree to a three rather than two day delivery timing. This is to get to a quasi three day delivery service but presumably still using six days. Don’t know what happens to non-bulk letters - would guess it is take pot chance and Royal Mail gambling they can deliver enough on time to meet QoS targets. Not entirely clear how it all works but only will require OFCOM approval not legislation.

Royal Mail a bit desperate it seems.

https://www.thetimes.co.uk/article/royal-mail-hopes-to-save-650m-by-delaying-delivery-of-nhs-letters-qxdvlvw5j

Forensicbloo

Forensicbloo

I think the interim drives the final. So, as you say, once we know the interim we know the final.

The reason that they can do this is because, in my view, the ordinary dividend is set cautiously and also that they are running buybacks. For the 2023 year there was a £2bn buyback and total dividends will cost almost £2bn. The year end profit in any year may be uncertain but it is certain enough that if there is trouble Lloyds can maintain (indeed still increase) the dividend by curtailing or axing the buybacks. Keeping the ordinary dividend on track is absolutely imperative for an income share like Lloyds. Any cut would hit the share price hard and the CEO and CFO would probably be sacked.

They could be doing special dividends instead of buybacks. However, this has no long term benefit and if you keep paying a special dividend and then halt it the effect can be similar to reducing an ordinary dividend.

So I think the way Lloyds sees it is:

(1). Have a cautious ordinary dividend that can be maintained and increased each year;

(2). Do as much buyback as possible. This is what the institutions want and (eventually) will start to show up in the share price through reduced share count;

(3). Any other surplus capital in a good year can be distributed by special dividend.

I had thought that there might be a special dividend in February 2025 based on the 2024 year but I think the car stuff is likely to have killed that. I would be very surprised if we get a special dividend next week.

The other thing to mention is that shareholder distributions are conditioned not only by surplus capital but by surplus REGULATORY capital. This is a separate calculation outside the balance sheet numbers (but based on the balance sheet numbers). Within that management run a buffer of 1% within the 13.5% capital ratio they seek to maintain. That buffer is about £2bn and if they had a really hard year they could dip into that.

Forensicbloo

Last year the Lloyds investor relations director clearly stated that ratio in one of ShareSoc’s webinars in response to a question from a shareholder. Can’t remember which webinar. Also that is actually what they have been doing.

It would be very embarrassing for them to cut the dividend and that would be a last resort. The buyback would be stopped first.

They will have to go for the higher bid given their fiduciary duties. Also the Court could hardly approve the Scheme if there was a higher bid out there. I was likely wrong to say the board would be “very difficult” in recommending another bidder but they may be less inclined to an outsider than one might hope.

I am not sure we are due a specific WK update any time soon. The last presentation said we are next due an overall R&R update and then Singida (before Q1 update - pushed back from what they said previously at Q3 in October 2023 when they said Singida would be out before Q4 results).

My guess is that Lloyds will have about £4bn surplus capital to potentially distribute. Possibly a bit more. That includes the write back of the Telegraph loan provision, said in the press to be around £500m. But it excludes any dividend in early 2024 from the insurance division - in 2023 only £100m but year before £600m.

I cannot think they will, yet, make any provision for the car stuff (Close and NatWest did not). They will wait for the FSA report at the end of this year. Only then can some sort of number be worked out.

The final dividend will be 1.84p - they are clear on the 1/3 to 2/3 interim to final ratio. About a £1bn cost. That leaves £3bn surplus. My guess is that they will stick with £2bn buyback (before the car stuff I would have guessed £2.5bn). I very much doubt a special dividend. With the car stuff there is more uncertainty about how much capital Lloyds will generate this year - as quite likely will take a provision on the cars in Q4. Buyback has the advantage that it can be halted if results are not looking good enough to deal with any future car provision. Special dividend is one off and goes out the door more or less immediately.