Member Info for Hounddog10

Yes Hornby was appalling as was the board that appointed him. No banking experience only retail. Banking is fundamentally about risk. Similar experience issue, the other way, at John Lewis.

As you say Lloyds was undoubtedly boosted by PPI from around 2000 to about 2008/9 I guess. I think they stopped selling PPI in 2010, but as the GFS broke in 2008 I doubt they did much in the way of loans with PPI attached. The benefit over that period would have been the £17bn refunded (although that included penalty interest at 8% per year per usual UK civil claims rate and that would be a material number in the £17bn given individual claimants would have got years of interest in addition to their payout).

I have no direct knowledge of how Lloyds’s individual businesses were operating pre GFS but it’s loan book was conservative and survived the crisis well. In 2009 the Lloyds side of the business made a loss of £2.8bn having taken loan losses of £4.4bn. However, the £2.8bn loss was after taking a £3bn subvention payment (a capital bung into the HBOS side of the business) and a £2.5bn payment for its non-participation in the Govt Asset Protection Scheme (GAPS). I say non-participation because, unlike RBS, LBG never went into GAPS but the Govt still charged them anyway on the tenuous basis that they had indirect benefit. I guess Brown was a bit short of tax revenues by then. How the Board agreed to pay it and how JPMCaz managed to write a fair and reasonable opinion on it as a related party transaction (by then of course HMG was the majority shareholder in LBG and the recipient of the money) is beyond me. Post 2009 the Lloyds side of the business still made profit except for the fact that increasingly large PPI provisions were coming through.

There is perhaps a lesson here for today. If Lloyds’s loan book could survive the GFS so well then perhaps the City is over worrying about how it will fare today. They have much better LTVs and are carrying much higher provisions than they ever did.

Gazzlebury. Both sides were at fault. In fact what happened was that the Govt, because it took such a big share in Lloyds through the initial recapitalisation, ended up putting a great deal of money in (during the 2009 fund raisings) but it was not that obvious and optically was very convenient for Brown. Of course the eventual situation was that the Govt got out of Lloyds at more or less breakeven (excluding cost of carry) but Lloyds shareholders were almost wiped out. There really was no excuse for what Brown did if you were a Lloyds shareholder. It was not just that he did not stop the deal but promoted it in the first place and did everything to arm twist Lloyds into completing it when it became clear it was a terrible deal.

All my capitals gone (automatically) on the last note. Strange. The bots are taking over?

for some time prior to the financial crisis lloyds had been casting around to do a deal for growth. they were very efficient but lacked the ability to shift a gear. they had already identified hbos as a complementary acquisition but had ruled it out as being unable to get the deal through competition hurdles. as one after another bank went down (northern rock, bradford & bingley, rbs teetering on the edge) brown’s political skin was at stake. in a ****tail party at spencer house (this is on the edge of green park and owned by lady di’s family with jacob rothschild’s gang in residence) brown suggested to daniels (then lloyds ceo) that the govt would not place obstacles in the way if lloyds sought to take over hbos. brown had been a cheerleader for goodwin’s rbs strategy of being the biggest bank in the world (i think goodwin’s flashy hq was in an edinburgh constituency next to that of brown’s). brown had also allowed minimum capital standards for uk banks. this was not totally out of line in the west but it was at the loose end eg spain was used to banking crises based on property devaluations and was much more conservative. for a country so beholden to financial services brown was betting the ranch. it was obviously convenient for the govt of the day as the banks were creating a great deal of credit to power the economy (and the banks were significant corporation tax payers) but also likely at some point to end in tears.

once daniels had taken the bait then it needed to be followed through. i doubt anyone really knew how bad hbos’s loan book was but equally i am sure brown did not see it as a problem for himself.

Actually, Lloyds were kinda forced. It was certainly the case that they did none of the due diligence necessary prior to announcing their offer for HBOS. Only after making the offer did they do diligence (access initially resisted by HBOS) on the loan portfolio and all the whacky complex assets such as CDOs. Under Takeover Panel rules you are meant to do your diligence prior to making an offer so they were a bit stuck as they would have incurred the wrath of the Panel for backing out. However, the Panel could not stop them doing so and having found out the terrible truth Lloyds were prepared to back out. They got as far as drafting a draft press release.

Sensing that Lloyds might back out Brown et al then imposed a massive recapitalisation requirement on Lloyds. Far more than they were imposing on other banks which had very much worse assets. Lloyds had a good loan book and really did not need to raise more capital to secure itself. Issuing all the new unnecessary capital would have been very dilutive (as would be raising capital at a very low share price) but Lloyds was then given the option by the Govt that if they bought HBOS their own recapitalisation would be substantially relaxed and so much less dilutive. Lloyds took the gamble that HBOS’s assets were not going to be bad as their worst case predictions. They lost that bet spectacularly.

It is a scam. Hostile bids, very rare now, don’t work like that. Report it to your broker/custodian/Lloyds. How do they know you hold Lloyds shares?

In some ways it is the Govt’s position on the USO I understand least. Why are they so opposed to its reform? If things do not work out on the ballot or there are other problems RM could go into (or be in) administration in an election year. Gift to Labour.

Perhaps you are right. The attitude of the CWU has mystified me.

Sea Pearl is the one small ray of hope. They must have a good insight into SYM’s potential and believe in it. However, it has to be said they have called it wrong so far in terms of the price they paid putting money in and accepting warrants that have expired worthless.

I think the CWU never really believed the grim financial outlook for the business. They never understood that management had its back to the wall and themselves faced little choice. Adapt or die.

The way I see the share price (longer term view) is as follows. Lloyds currently trades around TNAV and has a yield of 5%+. The yield has a bit of risk premium over market rates of return because banks are out of favour. To my mind it is the yield that will change Lloyds share price as TNAV is unlikely to change much as value accretion gets distributed.

Shore Capital sees full year profits at £7bn+ this year. That is quite likely but quite a bit of that in 2023 will have to go to deal with the pension deficit and more regulatory capital. So it is 2024 which is of particular interest. Assuming not much changes we should get £7bn+ again. I don’t think (practically) Lloyds can do more than £3bn of buyback in a year and we will be going into 2024 with about 64bn shares. So that leaves £4bn+ In 2024 to be distributed over a dwindling amount (because of ongoing buyback) of 64bn shares. That is almost 7p a share or nearing a 15% yield on current share price. The market surely will have to adjust the share price to get the yield down perhaps to 6%-7%.

Unless there is a deep recession loan losses should not rise much. Lloyds has £5.2bn of provisions based on its base scenario. It’s downside scenario only sees it needing to carry a £5.7bn provision. A modest extra £600m. That downside scenario assumes a 20% drop in house prices. (It is only when you get to a severe downside (50% house price drop) that it gets really nasty - £10.1bn provision needed). Although, earning NIM seems to be a bit tougher there are tailwinds from rate rises that have not been fully reflected yet. So I would hope the £7bn profit is reasonably secure as things stand at the moment.

Macro events could quite possibly derail this but a potential near 7p distribution in 2024 (and for each year beyond) does look achievable in normal times and is the prize to be had. Just a question when the market thinks this will happen.

From the trading update 23 December 2022:

“commercialisation of several near-term active [d2p] pipeline opportunities (excluding India) is expected in the very near term” Nothing announced.

“The near-term commercialisation of our projects and resultant sales are significant, with profitability anticipated within Q1-23 we are increasingly confident in delivering positive updates in this regard during 2023.” So were they profitable in Q1? We are in May.

Asperger asks if Lloyds generates about £6.5bn Profit after tax this year (his estimate but around mine as well) and dividends and buybacks were to cost £4bn where would the remaining £2.5bn go.

It would go in two directions:
(1). Fixing the pension fund deficit. As with last year Lloyds has already accelerated pension deficit contributions and the whole year of fixed contributions (£800m has gone in during Q1). Hopefully that is it now and the deficit is fixed (Note it is important to note that the deficit contributions are not a p&l charge but a balance sheet movement - so not in the estimated £6.5bn).
(2). Increases in CET 1 regulatory capital requirements, being:
(I) End of last bit of regulatory capital relief on new (and harsher) loan loss accounting that came in about 3 years ago. That change requires £400m of extra capital.
(II). A requirement to raise the counter cyclical buffer from by 1% to 2% of CET1 by early July 2023. This requires about £2bn extra capital of which Lloyds already has about £1bn. (Lloyds CET1 ratio was 14.1% at end Q1 and it aims for 13.5% - the difference is about £1bn).

Last year Lloyds had to put over £2bn into the pension fund and also raise the counter cyclical buffer from nil to 1%.

These requirements have weighed heavily on Lloyds’ ability to distribute to shareholders but they are almost now over and will be over by early July. From then on what is generated in profit after tax should be fully available for shareholders rather than having to be diverted to past pensions and extra regulatory capital.

I rather fear they are significantly adrift of forecasts and are hoping for “something to turn up”.

PhatStyle. Thanks for that. Where is that paragraph from? It has always puzzled me that Shanta has escaped the 16% free carry particularly on Singida. It would not surprise me if the back VAT claim features in the discussions if we are to be diluted by a Govt grab.

SYM going for that end Friday, bury bad news, after market RNS release? Who knows?

RG Postie. Yes, I know a good many of these articles are just click bait but I thought some of the comments on international comparators were relevant eg US Post now subsidised and the sizing of workforce v revenue. I am sure that the author did just drag the 162,000 number off Wikipedia but actually IDS does publish a Full Time Equivalent number for RM employees and that is 158,000. Also of relevance I thought was the implication that there could just be a long hard slog of trying to rightsize the business and it ain’t going to be done in one go.

As Newdealz says RM have got to work out an end to end offering - getting householders to install lockers, link up with locker boxes, put locker boxes in DOs, get info from the customer as to where non delivered parcels can go. Then RM can play to its network strengths. I rather get the impression not much of this is being done given the dispute.

I don’t agree that IDS is uninvestable (or perhaps the author just means RM?) but the article has one or two relevant points. It is wrong on pensions. No problem there - all three in actuarial surplus. The issue with the posties’s pensions may be the go forward hybrid DC/DB “Dutch” scheme which as the size of the workforce contracts would likely be a disaster waiting to happen.

https://invezz.com/news/2023/04/20/ids-share-price-is-rising-heres-why-royal-mail-is-still-uninvestable/

To which might be added the $20m Stanbic loan is a 5 year loan repayable over 4 years starting this September ie $5m per year. The $4m Stanbic overdraft facility was upped to $10m in January and at 31 December 2022 they had only drawn $3m or $3.5m (depending on which of the alternate figures presented in the accounts you want to believe). They have plenty of time to repay the bulk of the borrowings and have got good short term leeway in terms of overdraft facilities.

The issue on debt/funding is really WK - how are they going to fund that? I think when we have more clarity on that that should help the share price.