Member Info for tophat

Lloyds pointed out during the 2023 results presentation that, along with the ombudsman case, there have already been a number of county court cases against Lloyds. “Most of these” were won by Lloyds. This begs the question Whether or not the different decisions were a due to the individual facts of the cases or whether different judges interpreted the law differently? If the latter then the FCA may wish to bring a test case to the Court of Appeal, or even Supreme Court to clarify the law before it issues its decision.

Interestingly, while Lloyds is the largest single supplier of motor finance in the UK, the motor industry supplies approx. 60% of the finance itself. The car manufacturers want to make money on both the sale of the cars and the finance used to buy them. So elements of the motor industry may want to challenge any adverse decision.

B-w-f

“Ex-dividend “ means “without dividend”. Hence the Ex date of the 28th meant that the 28th was the first date that you buy the shares without the dividend. So the last date to buy with the div was 27th.

Hopefully this clarifies the situation.

On Wednesday 20th March2024 the Treasury Select Committee held an evidence session on retail banking. Giving evidence were Charlie Nunn, CEO, Lloyds Banking Group; Vim Maru, CEO, Barclays UK; Mike Regnier, CEO, Santander UK and Paul Thwaite, CEO, NatWest.

The subject of bank valuations came up and Charlie Nunn made a number of points.

Charlie Nunn: ... At the start of the year, we were all trading on average at 0.5 market to book. If we look at the equivalents for other countries, Europe would be nearer 1, though not all of the countries—

Q164 Keir Mather: It is a lot lower than pre-financial crisis.

Charlie Nunn: Yes. The US is at about 1.5. Canada is higher. In Australia, the Commonwealth Bank, which is a good organisation, is trading at 2.8 times. …What am I hearing from my investors? This is about investor views. There are primarily two things. The first is certainty around the UK economy. The good news around that is that in the last three months there seems to be a more positive outlook and more business confidence in the UK. There is a resurgence of international investors looking at the UK economy with a more positive outlook.

The more complex one is what they see as very significant uncertainty around the Government and the regulatory environment in the UK, which is materially different from other countries that they invest in. Of course, investors are only one stakeholder, but they do not have to invest in the UK and they do not have to invest in financial services. We have seen a very large number of investors decide not to support UK financial services. Those are the reasons.

A question to Mike Regnier produced this response

Mike Regnier: Thank you for the question…In our case, Santander Group operates in a number of geographies around the world. Equity and capital are pretty fungible. The decision that our group makes on almost a weekly basis is, “Where am I better putting my next euro of capital? Is it in the UK? Should I put it in Brazil? Should I put it in Mexico? Should I put it in the US? Where are we going to get the most return on that extra euro of capital?”

At the moment, in terms of the competitive nature of the UK, our tax rates are higher than many of the other countries that we, as a UK business, are competing with for internal capital within our group. The cost of fraud is borne by the banks in the UK. That is quite unusual globally. As a result of all those things, if I were the group, I would not necessarily be putting a lot more capital into the UK; I would be putting it in other places.

The full transcript of the session can be found using the link below.

https://committees.parliament.uk/oralevidence/14541/html/

A couple of points made during the management presentation this morning clarify issues raised on this board.

First they don’t see the Customer Duty issue causing any significant liability.

Second the dividend increase could have been greater but they are targeting a reduction in the leverage ratio over the next two years. There is a £300m bond callable in July which they won’t renew.

“Meet the new boss.

Same as the old boss.”

What shareholders in banks and insurance companies need to keep in mind is that the capital position is more important than the accountancy profit and loss.

Shareholder distributions such as dividends and buybacks, together with investment in new business, are paid out of excess capital, not profits.

For insurance companies the overall Solvency II Own Funds Capital Generation (OCG), Surplus and Cover Ratio are important. These are basically how much capital was generated, the surplus over the regulatory minimum capital required and the ratio of the surplus to the minimum. Slide 42 of the results presentation gives a good summary of the Capital position for Aviva.

Many things such as goodwill and fair value of own funds can make a big difference to the profit/loss figure but have absolutely no impact on the capital. As has been pointed out the change from IFRS4 to IFRS17 resulted in a loss for the restated 2022 accounts. However the capital position remained exactly the same. The change has no impact on capital which is what should be important to shareholders.

Basically Barclays own more than 1% of shares in a company which is subject to a takeover. Changes to the number of shares they own have to be reported to the market.

Hardup

You are correct Lloyds will wait until the results of the FCA review are known.

Companies cannot take provisions unless the amount can be reasonably estimated. The FCA review makes this impossible.

Close Bros didn’t take a provision, they cancelled the dividend. Incidentally motor finance is about 20% of Close Bros business.

There was more clarification on the Canada sale during the management presentation this morning.

The proceeds will be c $10bn with c $4b i.e. 21c per share for the special div. Regarding the remaining c $6bn they said that they expect an ongoing share buyback process.

On the timing, they expect the deal to complete in H1 but it may not be possible to pay the special in H1 as there are regulatory processes to go through first, however they will pay it as soon as possible.

Only that they expect to pay it in H1 2024, so by the end of June this year.

HSBC said that they were targeting a dividend payout ratio for 2023 and 2024 of 50% of EPS (excluding exceptional items) which is why the final this year is 31c.

Today they have confirmed their target payout ratio of 50% of EPS in 2024.

Oakie

Unfortunately in the management presentation this morning Barclays said that the cash payout for dividends would remain about the same. The increase in dividend per share would come from the decreasing share count.

I don’t think you want Lloyds to follow Barclays in this respect.

Regarding the £10bn of capital distributions by 2026, a comment was made during the management presentation, which is still ongoing, that they expect the cash amount of the dividend to remain fairly constant with the increase in div per share coming from the reduced share count. So no big increase in the cash dividend.

The full text of the Ombudsmans ruling can be found using the link below.

The decision is lengthy and difficult to follow in places as rules are specified by paragraph numbers rather than the text itself.

I think that the main points made are as follows-

1) The discretionary commission agreement was permitted at the time the contract with Mrs Y was made.

2) However the dealer/broker/agent was under a duty to disclose the DCA to Mrs Y before she entered into the agreement.

3) The principal lender, in this case Black Horse Limited, may have had a duty to ensure that Mrs Y had been informed of the DCA. In any case there was nothing to prevent Black Horse itself from informing her of the DCA.

4) Failure to disclose the DCA put Mrs Y at a disadvantage causing her to pay an inflated level of interest.

5) Mrs Y was entitled to compensation for the overpayment.

6) Black Horse is responsible for paying the compensation as they were the principal lender.

7) The Ombudsman suggested three options to remedy the situation. The obviously cheapest option, which was chosen by Black Horse, was to repay the overpaid interest plus interest at a flat rate of 8% p.a.

8) To calculate the excess interest paid Black Horse had to recalculate what each payment would have been had Mrs Y been charged the lowest rate of interest available in the DCA and deducting this from the payment she actually made. The 8% interest was charged on top of this.

9) The ombudsman didn’t disclose the name of the dealer/broker/agent as all liability for redress lies with the principal lender.

Apologies if I have missed or misinterpreted anything important.

How much, if anything, can be reclaimed from the dealer/broker/agent is another matter entirely.

https://www.financial-ombudsman.org.uk/decision/DRN-4188284.pdf

Hounddog10

You are correct.

During the Retail Investors Update on 8th December 2022, Douglas Radcliffe, Group Investor Relations Director said "... normally when we split the interim and ordinary it tends to be a 1/3 to 2/3 split."

The latest analysts consensus for hsbc can be found using the link below.

https://www.hsbc.com/-/files/hsbc/investors/investing-in-hsbc/pdf/240208-consensus-financial-estimates-for-hsbc.pdf?download=1

Badjob

I’m not surprised. The analysts seemed very unimpressed at the Q3 results presentation when the additional costs were announced, and for good reason. Normally such an announcement would have estimates for the cost, payback time and eventual run rate savings. None of these were given. It’s almost as if they are spending the money and hoping the savings will follow!

The latest analysts' consensus for Natwest can be found using the link below.

https://investors.natwestgroup.com/~/media/Files/R/RBS-IR-V2/documents/natwest-group-q423-consensus-08-02-24.pdf

The latest analysts' consensus for Barclays can be found using the link below.

https://home.barclays/content/dam/home-barclays/documents/investor-relations/consensus/20240208-Barclays-PLC-Consensus.pdf

The FCA regulates financial firms.