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Devonbeachbum

Of course your example using an SP of 450 will show a loss. The consolidation ratio and B share price were chosen to match the SP at the time of the announcement, taking into account the 14.7p dividend which had already been announced.

The closing SP on the day before the details were announced was 438p. Taking the 14.7p ordinary dividend into account gives an adjusted figure of 423.3p

If you use this figure in your calculation then the figures should match up. Using any higher figure is bound to show a loss.

What happens to the SP is anyones guess as it usually depends on a small number of traders (in comparison to the number of shareholders) trading a small number of shares (in comparison to the number of shares issued) who by and large are looking for a quick profit and have no real interest in the long term success of Aviva.

CSDI1962

If you want to compare Lloyds in 2007 with today you have to take into account the changed environment. Prior to 2007 Lloyds and HBOS were benefitting from the vast amounts of PPI that have subsequently been repaid to customers. Following the financial crisis there was a whole rethink as to what constituted profits for the banking sector.

Accounting, capital and liquidity rules have all changed to such an extent that if the current regulations were applied to Lloyds or HBOS then not only would they have been unable to pay dividends in 2007, they would be desperately struggling to raise enormous of capital and liquidity (which I doubt they would have been able to do). I am not an accountant but strongly suspect that if the 2007 regulations were applied to LBG today it would be a monster f a bank.

The latest consensus figures can be found using the link below.

The full year 2022 ordinary dividend is estimated at 2.34p with £1,674m excess capital distribution.

https://www.lloydsbankinggroup.com/assets/pdfs/investors/financial-performance/lloyds-banking-group-plc/2022/2022-lbg-q1-consensus.pdf

ICL1960

"What I find dodgy about share buy back is, isn't it insider trading?"

No it isn't insider trading.

The whole reason for appointing Morgan Stanley as the broker who decides when to buy and how many shares (within the permitted limits) is to avoid any such accusation of insider trading.

Lloyds are more than capable of buying the shares themselves but delegating the responsibility to Morgan Stanley, who don't have any insider information about Lloyds removes any possibility.

What people need to understand is that the accountancy concept of profit and loss is almost totally meaningless for banks and insurance companies. What really matters is the capital surplus as this determines how much the company can return to shareholders or invest into the business. In banks the figures that matter are the CET1 (Common Equity Tier 1) and the CET1 ratio, in insurance companies it is the Solvency II capital and the Solvency II coverage ratio.

There are many things which can have a big effect on the profitability of a bank or insurance company, deferred tax assets, fair valuation of own funds and goodwill, to name just three which have absolutely no impact on the capital position.

The best example I can think of to illustrate the disconnect between profitability and capital is the final dividend payment made by RBS (now Natwest) on its Dividend Access Share. After eight consecutive years of losses which total over £50bn, the PRA allowed RBS to pay out a £1.2bn dividend on the share in 2016. The PRA were happy for the distribution to be made because of the exceedingly high CET1 ratio RBS had at the time.

The accounting rules for insurance companies are changing to IFRS 17 from January 2023 and the initial impact will be that reported profits will be lower, or losses greater, than under the current standard. However the changes have no impact at all on the capital position so the amount the companies will have for investment or shareholder distributions will not be affected.

Henrythecat

I don't kmow of any funds which are fornidden to from inevesting in PHNX. Can you please give examples and why they are forbidden to invest in PHNX?

longterminvestor

You are corect that there was a 1 for 40 scrip div which I forgot to mention but it is included in my spreadsheet so the figures don't need to be changed.

The speed of the decline in SP of all of the UK banks just highlights the seriousness of the situation. John Gieve, former deputy governor at the BoE, later said that the UK banking system came within a few hours of collapse.

On 17th September 2008, the day before the acquisition of HBOS was announced, the closing SP for Lloyds TSB Group PLC was 279.75p. At the same time the SP for Barclays was 317.75p.

Since then Lloyds have had two capital raisings and any shareholder who took up their entire allocation would have approx. 5.58 times the number of shares they started out with at an additional cost of 228.46p per share. The breakeven SP for someone who bought Lloyds at the closing SP on 17/09/2008 is approx. 91.14p

Barclays had a 1 for 4 rights issue at 185p per share so the breakeven SP for a Barclays shareholder is 291.2p.

The current SP of Lloyds was 48p when I checked and Barclays was 151.88 which means that both are trading at approx.52% of their breakeven values.

Considering Barclays got the profitable parts of Lehman Bros and Lloyds got over£52bn of losses from HBOS this seems to be quite remarkable, especially as Lloyds paid out twice the amount in PPI claims as Barclays.

The trick is to understand what Motley Fool are doing. They will invite someone partiularly bullish on a share to give their judgement but the next time it will be someone very bearish about the share. The idea being that you then get both sides and can then make your own mind up as to the merits of the arguments.

Porsche19466

The rise of the Fintechs may take longer than you think.

Andrew Baily has already given evidence to the Treasury Select Committee enquiry into Financial Stability to the effect that if Fintech’s (either as a single firm or as the industry as a whole) become significant to financial stability then they will face additional regulation. This almost certainly means greater capital and MREL requirements.

The challenger banks have already complained that if they achieve £50bn of deposits they need to raise large amounts of expensive MREL and this is an obstacle to them growing to challenge the big banks. To put the £50bn into perspective Lloyds had £476bn at year end.

Even without capital and MREL requirements, addition regulation brings additional compliance requirements and just running the business day to day becomes more complicated. Don’t expect small, nimble Fintech’s to develop into large, nimble Fintech’s any time soon.

shatter

Your analogy with a dividend is reasonable but people need to remember that it is a distribution of capital which may incur Capital Gains Tax, rather than a dividend which would have other tax implications.

BlahBlahDoh

Although the final dividend is slightly less than last year 12.2p rather than 12.23p, the total for the year increased marginally to 18.3 from 18.23.

Hopefully the buyback will mean we will see a meaningful uplift for 2022, however the full benefit will only be obtained once it has completed.

It may not be possible to complete the buyback before the 2022 interim div xd date which has been provisionally set for 18th August 2022.

During the analyst Q&A session this morning, John Foley confirmed that the "stable or increasing dividend policy" was in cash terms, not dividend per share. This means that the dividend per share will increase for 2022 to take into account the reduction in shares from the buyback, irrespective of any increase in cash payout.

saintly

Remember that a share buyback was announced at the same time as the trading update in January. We won't know the size of the buyback until the results are published but obviously the more spent on the buyback the less will be available for a special dividend.

During the analysts Q&A which is currently ongoing, Jo Dickerson from Jefferys asked how the board considers the balance between dividends and buybacks.William Chalmers, CFO said that with the SP being below TNAV there is a preference for buybacks and that a number of the larger shareholders have expressed a preference for buybacks

The latest analyst consensus figures can be viewed using the link below.

The “23% analyst earnings drop” headline is a bit misleading. The drop in forecast statutory profits are mainly due to the fact that they expect a credit release for impairments in 2021 but a normal impairment charge for 2022. This also has an effect on taxation. The figures do not reflect a significant loss of earnings!

However the latest analysts’ consensus is for a full year 2021 ordinary dividend of 2.07p per share with a return of excess capital of £1377m.
Their forecast for F/Y 2022 is for an ordinary dividend of 2.42p per share with a return of excess capital of £1488m.

https://www.lloydsbankinggroup.com/assets/pdfs/investors/financial-performance/lloyds-banking-group-plc/2021/q4/2021-lbg-q4-consensus.pdf

I didn't take part in the competition but have made a donation to this worthy cause.

SFH300

If the analyst doesn't give a specific time range then it is usual to assume it is between 12 to 18 months.

Gary59

The comparison between HSBC and LGEN is totally unjustified.

The letter from the PRA to the banks “Requesting” that they cancel shareholder distributions contained an explicit threat to use its statutory powers to block distributions, if the banks didn’t comply voluntarily.

The choice the banks had was between not paying dividends and keeping the regulator happy and not paying dividends and upsetting the regulator.

Upsetting the PRA would have been silly as they could have taken the view that then board and management were less prudent than the PRA had thought and so increased the banks Pillar 2A capital buffer. This is the buffer used by the PRA to take into account the individual differences between banks.

Had this happened the net result would have been that there was less available to distribute to shareholders once distributions resumed.

Muchaboutmoney

Be careful not to associate overall profit or loss with amount available for distribution to shareholders.

There are many things which affect the profit/loss of a bank such as Lloyds which make no difference to the surplus capital from which distributions are made.

Deferred tax assets, goodwill and fair value adjustments of own debt are just three examples of things which can make a big difference to the overall profit/loss for accounting puposes but have no impact on the CET1 and hence distributable funds.

The best example I can think of to illustrate the disconnect between Profit/Loss and shareholder distributions is the final dividend payment, amounting to approx. £1.2bn, by RBS (now Nat West) on its dividend access share.

RBS made a loss of almost £2bn for the Y/E 2015, the eighth year in a row they made a loss which total to over £50bn. However the regulator was happy for RBS to make the £1.2bn dividend payment because of their capital position with a CET1 ratio of 15.5%.