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Thedetector
“Anyone using cash now to buy Aviva shares will lose out due to Aviva sp recent rises. Also have less shares for divi payout”

On the other hand if someone used the returned capital to buy AV shares when it was received on 19th May, as I did, they would have more shares than they did prior to the consolidation and own a greater proportion of the company due to the latter.

Pete640

I did say that I expected that Aviva would have consulted its major shareholders. FTSE 100 companies do that far more than many PI's think. Lloyds chose a share buyback because that is what their institutional investors wanted.

The point of the exercise was to return the excess cash the company had to the shareholders. Aviva couldn’t find enough new business within their risk appetite and profit margins.

While economic theory suggests that a company should invest up to their marginal point this is totally wrong for banks and insurance companies which have to hold regulatory capital against the business they write.

The financial crisis showed that marginally profitable business can become huge liabilities if there are regulatory changes in capital requirements.

Some people have suggested using it for M&A but the opportunities for acquisitions are limited. If there is a good, profitable business then the current owners will want a premium over its value to part with it. Paying a premium only makes sense if the target provides synergies such as scale or facilities which Aviva need but don’t already have. Also when a company takes over another it assumes all of the liabilities of the former. Look at what HBOS did to Lloyds!

The longer the company kept the cash the greater the pressure to use it in some productive way and there would have been a temptation do rash business or takeovers. The best thing to do was to return it to shareholders, which is what they did.

The company had three ways to return the cash. Dividend, Capital return or buyback. I would expect that Aviva consulted their major shareholders before deciding on a capital return. Having decided a capital return was the way to go a share consolidation makes things easier for shareholders to make multi year comparisons of SP, EPS NAV per share etc. as they don’t have to take the capital return into account every time they make a comparison.

I reinvested the B share cash I received yesterday and now have marginally more shares than I started with.

whybother

“DO NOT BUY”

That is investment advice which is illegal unless you are a suitably qualified investment advisor.

If you say “I WOULD NOT BUY “ then that is a perfectly legal opinion.

Benrumpsen1

The “tap which was turned off” was the lending to the economy. During the financial crisis even the banks which didn’t need state aid were desperately short of capital and had to cut back lending to both people looking for mortgages and to companies like builders.

The regulatory changes since then have dramatically increased the bank’s capital and every year the largest lenders undergo a stress test to make sure that they can not only survive a severe recession but can continue to lend to the economy through it.

Last year’s stress test was far more severe than the financial crisis and at its worst all of the banks still had more capital, and of a higher quality, than they did in the “good years” prior to the financial crisis.

TheFarEnd

“Eric Daniels (didn't he get the blame for the HBOS/due diligence fiasco)”

Indeed Mr Daniels did get the blame for the HBOS/due diligence issue which was never an issue!

The origins of the unfounded rumour started when Mr Daniels answered a hypothetical question from Andrew Tyrie who was then chair of the Treasury Select Committee. Mr Tyrie asked how much more due diligence Lloyds would have done if they could have performed an unlimited amount.

Mr Daniels replied between 3 and 5 times the amount they had done but went on to say that they had performed the maximum amount of due diligence permitted by the law. The latter point was rarely, if ever, included in reports of the exchange but makes a huge difference to the meaning.

In the Q1 IMS Q&A a question was asked about at what point do interest rate rises become a negative for the group. Alison Rose answered “very much higher than any of the forecast on interest rates “

Paul2566

“I'm expecting a drop tomorrow in line with the payout, but unsure it will happen like that.
Any comment.”

The SP didn’t drop by c£1 because your understanding of the situation is wrong. The delay between the XD date and the record date is more for historical reasons when brokers had to process everything manually. The delay gave the brokers time to get the records to the registrar and for the registrar time to process them.

These days this process is done electronically so in theory the XD and record dates could be the same, and in respect of the capital distribution, would have been the same if they had announced an Ex-Capital Distribution date.
The main reason for keeping a delay between XD and record dates is to cater for private transaction’s, which don’t go through a broker, where the transfer forms are lodged directly with the registrar. In this case private transactions will have had to be lodged with the registrar in line with their usual timetable.

machiismo

"To be fair, interest rates haven't been increased very long. It will take a bit of time before it makes it mark on the balance sheet."

Totally correct. Lloyds have already explained that, due to hedging and other effects, the full benefits of interest rate rises takes about three years to come through, with the greatest benefits in years two and three.

"Institutional Investors (eg like Scot Widows pension) - make their money from commissions on what they trade.
They do not benefit if an individual pensioner profits or loses on their shares. But they make money from commissions by holding over time and transaction costs on buying/selling units or shares. They even make money while the stock market crashes and then make more when the values go back up by charging a %age on the portfolio value. what do they care LOL ?"

Scottish Widows Pension funds care greatly about the asset values of their funds! Just look up their pensions offerings on their web site and you see that the vast majority, if not all, charge only an annual fee based upon the value of the fund at the valuation date. (see link below). This is not an uncommon situation.

Annuity providers, such as Aviva, Legal and General etc., which are huge source of ii funds, build in the costs into their initial agreement. The annuity recipients are not charged for every change that the provider makes in the fund which represents their pension.

Likewise, life assurance providers don't charge for changes to the underlying assets of their customers portfolios. The premiums don't increase and the sum assured doesn't decrease!

There are other investment opportunities such as those offered by e.g. MAN group but when their funds didn't perform they suffered large capital withdrawals leading to large losses for the company and their shareholders.

Most II's make money by attempting to deliver good returns for their customers and ignoring bad investment decisions buy the major companies they invest in is not part of their strategy.

https://www.scottishwidows.co.uk/funds/fund-charges.

If buybacks don't work, or worse, lead to a destruction of shareholder value, Why do so many institutional shareholders support them?

I would be very surprised if the resolution to allow the purchase of their own shares was not passed with an overwhelming majority at the AGM. If that happens then the II's must be in favour of buybacks as they own the vast majority of voting rights!

In the last 10 years, from and including 09/05/2012, Lloyds have issued 5.155bn shares for staff schemes, delayed compensation etc.

Using hardups figures (thank you hardup!) the current buyback together with those in 2018 and 2019 currently total 5.245bn so the buybacks have been marginally positive over the 10 years.

There were no shares allotted to these schemes in 2014, 2015 or 2016 however on the other hand there were only buybacks in in three of the ten years.

There were also additional shares issued for other purposes during this period. One reason was to raise the cash to pay the coupons on certain securities when Lloyds were trying to conserve capital and another was to remove a non-voting class of share.

Assuming that the £500m variable pension contribution paid in Q1 is half of the total for the year leads to the conclusion that the total will be £1bn. The 30% payout agreement with the trustees means that the total payout to shareholders (dividends and buybacks) would be £1bn/0.3 or approx. £3.33bn. This is remarkably similar to the total for 2021 (approx. £3.4bn) which makes me wonder if the board have already decided, if possible, to keep the payout the same as last year.

Lloyds made all of its fixed pension contribution of £800m plus an estimated half of its variable contribution of £500m so a total of £1.3bn in the quarter. The £500m variable contribution consumed 19bps of capital.

The dividend accrual for the quarter was 17bps which means they have set aside about 17/19*500m i.e. about £447m for the dividend. This works out as about 0.64p per share. The half year dividend last year was 0.67p so they have almost reached that in Q1.

Obviously the share buyback could improve the per share figure but there is no guarantee that just because the figure has been accrued it will actually paid out.

Theaky

The SP of shares like BP is determined by a very small number of traders (compared with the number of shareholders) trading a very small number of shares (compared with the number of shares in issue) who are trying to make a short term gain and who have no interest in the long term future of the company. The only rational for the trades is the perceived opportunity for a quick profit, sometimes within minutes, sometimes within seconds! They want to be the first to buy if they think the SP is going to rise and the first to sell if they think it will fall.

The traders will choose the shares in a sector they think, for whatever reason, that will have the most volatility as that gives them the best chance of a profit.

What really surprises me is when the SP of a share behaves in an economically rational manner.

meoryou

“Company has only one negative at the moment and that is some shareholders don’t see buyback as a return on their investment.”

You are correct that some investors, mainly PI’s, don’t believe in buybacks as a return on their investment however I can assure you that the investors which matter i.e. the institutional investors will have been consulted on, and the majority will have agreed to the buybacks.

FTSE 100 companies consult their major investors far more than many PI’s think.

I notice that there are a number of contributors to the BP board who seem to think that Bernard Looney unilaterally took the decision to move the business to a green strategy. That is false for two reasons. First a decision of that kind needs board approval and the CEO has only one vote on the board. Secondly, the proposal will have been discussed with, and agreed by, the holders of a significant majority of the shareholder votes, even before the strategy was announced.

For those people thinking that if the green strategy hadn’t been proposed to the board then BP would be continuing as before, without a green strategy, then think again!

Two of the major oil companies, who were dragging their feet regarding adopting a green strategy, Chevron and Exxonmobile were forced to adopt a green strategy by their major shareholders. (See the link below).

Blackrock, one of the activist shareholders who forced the strategy change on Chevron and Exxobmobile, owns almost 9% of the BP ordinary shares.

Irrespective of whether Bernard Looney or the board of BP wanted to change to a green strategy, it would have happened. That BP was an early adopter of a green strategy could be seen as either good luck or good management.

Any shareholder who doesn’t like either the buyback or change of strategy can make their point at the AGM but it will make almost no difference at all because the BOD already have the backing of the major shareholders.

https://www.theguardian.com/business/2021/may/26/exxonmobil-and-chevron-braced-for-showdown-over-climate

In Q1 Last year Lloyds had a £380m impairment release but this year the analysts expect a charge of about £200m.

Hi Briton

I would suggest that you contact Pheonix investor relations as they will probably have a copy and are unlikely to charge for it

Regards

Gate13Boy

"Always amuses me Motley Fool articles. This one says Lloyds share price might double in the next 12 months and no doubt another article from them next week will be forecasting armageddon for Lloyds."

That is exactly what Motley Fool does. They will invite a broker/analyst who is very bullish about a share to express their opinion but the next time it will be someone who is very bearish about the share.

I've seen many comments about Motley Fool to the effect that they rapidly keep changing their opinion about partivcular shares but that is not the case. They are simply getting people with different views to express them. The idea being that anyone reading both will see both the positives and the negatives and can make up their own mind as to the merits of the arguments.

Pete640

I can assure you that the largest shareholders will have been consulted and agreed on the plan.

Lloyds went for a £2bn buyback because that is what their larger investors wanted.