Member Info for Hounddog10

Https://www.internationaldistributionservices.com/media/12500/offer-document.pdf

Offer Document

Shinyfings

Yes, you should still be able to withdraw. Your right to do so only lapses when both (1) the Acceptance Condition is satisfied AND (2) the offer goes Unconditional. I won’t go into the Acceptance Condition, which is very convoluted wording, but I think now it boils down to when they get Romanian clearance (per RNS today). The offer going Unconditional follows from once they have got to 75%. They need both. The right to withdraw is at bottom of page 69 of the Offer Document.

You should also be able to withdraw acceptance for only some of your holding.

Obviously you will need to contact your broker or custodian of your shares. Best to do it now if you have made up your mind. They may not be very conversant with what can be done - but as the timetable drags on past the tax year I suspect others will be thinking like you and they may have to put some thought into it.

Pidgin

Time value of money or in other words you can sell up and put your money elsewhere and have a hope of earning a better return. The result of DK’s offer is an effective cap of 368p on the return from currently holding IDS (likelihood of another bid very very remote and he can block it anyway). So the share price is going to be somewhat lower than 368p. It has dropped because getting 368p has gone back to some time in Q2 (rather than Q1) but as time goes on (and assuming Romania clears - which I would be almost certain it will do) the share price should start to rise again towards 368p. There are arbitrage funds that come in at this time to make a quick but modest gain. 368p-362p (current share price) = 6p on 368p is about 1.6%. If you can make that in a couple of months that is about a 10% return annual. That is the logic.

I was a bit puzzled the timetable update was not out yesterday at the latest. Possibly I got my dates wrong (not sure how) or it might be the Panel has given them some flexibility, particularly if they have achieved 75% already (which another poster suggested Equiniti, the Receiving Agent for acceptances had indicated).

If you have accepted the offer you have provisionally sold your shares to DK and they are now in escrow. You cannot trade them.

I can’t get behind the paywall. However, I suspect something is up on the regulatory clearances because resumption of the timetable might have been expected by now if, as guided, the takeover is to complete in Q1.

This type of takeover is on a 60 day timetable (from the date of the issue of the Offer Document) to go Unconditional. The timetable was suspended on 2 August last year to give the extra time needed to get the regulatory clearances. When the timetable resumes it will actually go back a bit and start from Day 32. That is 28 days to Day 60. Monday is 3 March so after that I assume it has run out of time to complete in Q1. So I would assume some sort of timetable announcement tomorrow or possibly Tuesday morning.

A good deal of these corporate actions departments do not know what they are doing. They cannot know any final voting dates because it has not been announced to the market via an RNS. I suspect they have just put in random “placer” dates.

Completion of the transaction has been guided to be in Q1 2025. Given, when/if the timetable resumes after/if regulatory clearances happen it will take at least 3 weeks to get to an Unconditional Date IDS will need to update the market soon as to whether that timetable still stands.

I had been waiting for this judgment and rather feared this would go against Lloyds. Also I expected an appeal, which is happening.

However, I am baffled by this comment in the article:

“The lender is expected to acknowledge a decrease in cash of this magnitude in its earnings report due in July, a person familiar with the matter told Bloomberg, adding that the tribunal's decision will not affect the bank's capital.”

Under accounting standards they need to make a decision in the 2024 year end numbers. They can either make a provision or come to the conclusion that because they are appealing they don’t have to. Whatever, I cannot see why they would, as of now, be waiting to make any adjustment in July (presumably in the 30 June 2025 interims). I cannot imagine the appeal would be heard by then and so why would they preempt any decision by making a provision (and they won’t be required to pay over cash by then)?. And any adjustment to cash will affect capital. Baffling.

They have already said there will be a loss on £14m revenue. At a very rough guess I would have thought at least a £5m loss, quite possibly more. As TT says it is not really relevant. It will, however, be interesting to see the shape of the balance sheet. The coming half financial year is likely o be a loss unless it gets a milestone Kuwait revenue amount. It is the second half where things should get interesting.

Cautioustone

The 8p special dividend was announced along with the potential takeover when DK made his bid about six months ago. As you pointed out in the extract you quoted it is conditional on the bid going through. It is, however, (even though badged as “special”) really a substitute for the final dividend that shareholders would get anyway if the company remains listed. It is a quite normal arrangement so there is nothing nefarious about it. The dividend is not rolled into the bid price because it is, as noted, essentially an income amount rather than an amount for buying the capital of the company. If the 8p had been rolled into the acquisition price then DK would have to finance the 8p prior to buying the company. Instead he buys the company and it immediately declares a 8p dividend out of its own reserves which goes to the shareholders being bought out and a big hunk (27% of the total dividend payment) to him.

It was no surprise to me that there was no interim dividend - as there hasn’t been one for a couple of years and the 8p was clearly intended to cover dividends for the whole 2024/5 financial year. If the bid fails then there should still be a final dividend. As the 8p would have been done in consultation with IDS management it might be expected that that would be the amount. However, the 8p was set some time ago and the immediate prospects of IDS are now somewhat weaker - extra NI and the GLS business seems to be softening. So 8p may not be the amount but I would expect it to be not that far off that.

This takeover is relatively unusual in that, because of protracted clearances, it is taking so long and so DK runs into issues of paying dividends some time out.

RuBoB

The FCA cannot be sued. I think it goes back to the 2012 Finance Act and before. So that is not a let out for the car finance providers. However, the fact that they screwed up has some impact. In The Times Howard Davies (former FSA head, precursor to the FCA) has been reported as saying that, in his experience, the courts would not have intervened had not the FCA guidance been so wrong. The FCA has hit back saying that the courts are addressing fiduciary duty rather than disclosure issues. This is disingenuous. Disclosure and fiduciary duty issues overlap and any FCA guidance should take account of both.

It is difficult to know where this will all end up. However, my best guess is that the FCA will come up with some sort of redress scheme. This will be delayed from the already pushed back date of May 2025 (the analysts seem to think that as well) and will only happen once the Supreme Court has heard an appeal of the Court of Appeal decision (which I think it will allow, but does not have to - it requires, in the SC’s view, an arguable point of law. The SC does turn down many requests to appeal to it - see their website on permission to appeal decisions).

This then leads into the parameters of the redress scheme. I think there will be some pressure here on the FCA. It is not just the “evil” banks that are impacted but motor dealerships (often Mom & Pop enterprises) and the finance arms of major motor manufacturers. I doubt, practically, the banks will claw back commission from the dealerships, which I suspect they are entitled to contractually do and could bankrupt many, but they can threaten to do so. The motor manufacturers are also a different opponent for the FCA. They are more international and much less of their business is in hock to the FCA (as nearly all of the banks’ business is regulated by the FCA they have to keep it more onside).

There is then the possibility that whatever redress scheme the FCA comes up with will be challenged by judicial review. The FCA will argue that customers were potentially done over through lack of disclosure/failure on fiduciary duty and need to be recompensed. The banks (and others) will say we were just following FCA guidance. I think, unfairly (and it is a function of having a regulator with no liability for their decisions) the banks will end up paying but the threat of the argument of regulator failure may put limits on the redress scheme (whether it goes to judicial review or not).

I think the banks will be more aggressive than on PPI, when AHO capitulated with unforeseen consequences. They have learnt their lesson and have much better arguments on motor finance ie that they followed the regulatory rules. However, the likely conclusion is that they will be nailed for quite a lot of money, but I very much doubt it will be anywhere the sort of amount Martin Lewis is plugging.

Seany

In normal circumstances I would have thought a hearing to judgment would take a year. Firstly, the Supreme Court has to accept that the case can be appealed to it. In order to do so there must be a disputable point of law at stake. I would imagine that will be the case. Then the lawyers have to get their paperwork together and a hearing date set. Can’t see it being this Supreme Court term but Hilary/Easter/Summer term next year. Then the SC is meant to get judgments out in six months. At the moment they are somewhat quicker than that.

Could be quicker than that - proroguing Parliament and Rwanda were done in only a few weeks as very fast tracked. Can’t see it being done that urgently but the FCA is under a lot of pressure, as really much of this is their fault, and the car loan market is now very disrupted. The FCA/government may be able to pressure for some acceleration of the case. Also the Supreme Court is not very busy at the moment.

They have pushed the accounts back this morning. I would assume that is because, absent the pending fund raise and firming up on the arrangements on the performance bond, the accounts would show a going concern issue.

Not great they have left it to the last minute to announce this.

No, it is a very good question. When I read that bit of the RNS I took it as a shot across the bows of the FCA that they are likely going to be challenged when they come out with their conclusions.

It is a complicated situation. In most business situations you can be subject to a court retrospectively interpreting your legal position as being different to what you thought at the time when eg you signed a contract. However, that is mostly for individual cases and not a whole class of business. More importantly, most business does not have an intermediate adjudicator between the business parties and the courts as to what is the right way to do business. In financial services that exists through the FCA. They are a quasi legal authority.

I can see that there could be a judicial review challenge to anything that the FCA comes up with (could easily come from both sides depending on where the FCA lands). It is also worth noting that there are multiple parties affected - motor dealers, car manufacturers (through their finance entities) and the banks. So it is not that easy this time to solely beat up the banks as the bad guys. It may well be that the motor manufacturers take the lead in challenging any rulings. It probably affects them more than the others.

I think this may be different to PPI when the FSA/FCA only caught up with what was going on towards the end ie they had not put in place specific guidance.

We are already beginning to see that the Court of Appeal ruling is impacting the new car market, which I think (outside fleet) largely relies on financing through motor dealers. This will weigh on any FCA decisions made.

It is going to be messy and prolonged and weigh on the share price. I suppose, at least, it will allow Lloyds to take out more shares through buybacks (provided the provisions are not too big or immediate so that there is enough surplus capital to do buybacks).

Chid

Yes, it could extend beyond car loans which is going to be worrying generally for the finance industry. However, there will be a good deal of opposition to the ruling. Unlike PPI, just on the car loans side, this is going to impact not only the banks but the car dealerships and the finance arms of motor manufacturers.

I think even the FCA will not be particularly pleased. Shore Capital reckons that the FCA are likely to have to delay their ruling next year until the appeal is heard. That would be my guess.

https://www.cityam.com/lloyds-shares-slump-as-analysts-warn-of-3-9bn-motor-finance-bill/

Three firms now have, for the moment, pulled car financing. This could get very messy if more follow. Could crush quite a number of car dealerships, which I think are not having a particularly easy time at the moment. Also won’t be good for flogging EVs and so all this Net Zero stuff Labour is so keen on.

https://cardealermagazine.co.uk/publish/car-finance-pauses-as-banks-figure-out-legal-implications-who-has-stopped-lending/309365

Hollybean

The final dividend should be OK. They had a 14.3% CET1 capital ratio at 30 September (30 June - 14.1%). In the final quarter to December that should go up to 14.5%. That ratio already takes into account the final dividend and the current £2bn buyback. They have said they will return all surplus capital to shareholders based on the 2024 accounts. From end 2024 they intend to only have a 13.5% CET1 capital ratio. So they will be 1% above which is about £2.2bn surplus capital. I had expected that to go to a 2025 £2bn buyback (plus possibly a small special dividend) but some may now need to go to car loan provisions.

They will do everything they can to maintain the ordinary dividend and its growth. I think Lloyds is fundamentally valued that way (rather than, say, TNAV).

Very broadly, absent bad times or “one off” charges, Lloyds should, near term, make around £5bn surplus capital a year (quite possibly more from around 2026) - which I see being distributed as: £2bn in ordinary dividends, £2bn buyback and £1bn for other. “Other” can go to special dividends or an enhanced buyback or cover for unexpected “one off” charges such as the car loans. Reducing the buyback also provides protection for the dividend.

They have also said they will go to a further reduced target of 13.0% CET 1 ratio by end 2026. That releases a further £1bn of capital, some of which might be taken in 2025 to deal with car loans.

The RNS does make it more likely they will make a further car loan provision in the 2024 accounts, which I had thought unlikely, but there is so much uncertainty I am not sure how they will come up with a number.

It is worse than that. The judgment seems to put a fiduciary duty on the lender. Disclosure of commission is not enough. The lender has to act in the best interests of the customer. How that works in practice is anyone’s guess. The lender has no direct contact with the customer - it is done through the motor dealer. I can well understand why CB is pausing new business.

The Court of Appeal judgment is quite complicating in terms of timing on DCA. The FCA is meant to come out with its position in May 2025. Lloyds will issue its annual accounts in February 2025 without knowing the FCA position. They may have a good idea from internal sources what the outcome is likely to be but the FCA could change its mind at the last minute and under accounting standards for provisions you are only meant to make a provision if you have ACTUAL knowledge of a liability (not just hearsay). I have no idea how, technically, they managed to make the £450m provision in last year’s 2023 accounts but assume they did it because they had an unexpected windfall (write back) of about the same amount on the Barclays brothers’ loans. It is difficult for auditors to resist companies putting up provisions even if the technical justification is thin.

Therefore I think it likely (but not impossible) that there would be no car loan provisions in the 2024 accounts. This then leaves what might happen in 2025 and beyond.

The FCA is now in a tricky position. As I understand it the Court of Appeal’s judgment is retrospective ie impacts the duty that lenders are said to owe customers in the years affected by DCA. Therefore, the FCA has to take the case into account in any conclusion they come to in May 2025. However, it is being appealed. I cannot find the judgment yet in the legal Bailii database but I assume it did not include permission to appeal and this, firstly, would have to be obtained from the Supreme Court. I suspect Close Bros would get it. However, although the Supreme Court is not very busy at the moment, it will probably take at least a year to get the case to court, heard and judgment delivered.

So it is possible that the FCA will have to push back its conclusions to a later date. This should mean (any) provisions also get pushed out into the future.

I would agree with others that these sort of liabilities have a nasty habit of being much bigger than initially thought with very big administrative costs. However, I cannot see it being anywhere near PPI and Lloyds has the experience of managing that so, hopefully, some lessons learned. It is also worth remembering that any provisions should attract tax relief at 25%.

The share price looks oversold at the moment. More important is what Rachel the Robber comes up with next week.

MVarawa

Any tax paid by the government on public sector salaries is in effect a payment to itself. So employer NI is neutral. The salaries of public sector workers are a cost to the exchequer but the exchequer gets back the part that has to be paid in income tax and employee NI.

The position on public sector pensions is a bit more complex. Insofar as public sector employees are required to make contributions the exchequer pockets that money in the year and spends it. That is because government accounts work on a cash not an accrual basis (unlike corporates). Of course, monstrous pension liabilities are being built up for the future and will likely bankrupt the UK. See Whole of Government accounts..

Trap. I was referring to the original comment of the impact of higher employer NI on public sector wages. That is cost neutral. Yes, Labour are about to make life much more difficult for SMEs.