Lloyds tries to close high-paying bonds for pensioners
Lloyds is under fire from furious savers who have been told that the bank wants to cancel their savings bonds.
Lloyds Banking Group has asked City watchdog the Prudential Regulation Authority (PRA) for permission to return bondholders' cash and stop paying them interest.
Tens of thousands of elderly savers are likely to be affected, losing returns of as much as 16%.
Most of the affected bonds were issued many years ago by building societies that were later taken over by Lloyds. But when the bank faced collapse in 2009, the bonds were switched to a form of invesgtment known as an enhanced capital note (ECNs), helping Lloyds to pass its 'stress test' and survive.
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At the time, it wrote to bond-holders, saying: "Investors exchanging into ECNs will be offered securities with a fixed redemption date and whose ratings are generally expected to be higher than those of their current holding."
Now, though, ECNs aren't being included in the latest stress test, and Lloyds wants to redeem them at face value. This means that not only do the holders lose their interest, those that paid more than face value for the bonds will lose capital too.
It says it's entitled to do this because, last year, it warned there was a strong chance that ECNs wouldn't be included in the stress tests, and offered to buy them back at market prices.
"The documentation always highlighted the possibility that these securities could be redeemed ahead of their maturity dates at a price equal to their original face value," it says in a statement to the Daily Telegraph.
"This situation has now occurred. The group has made every effort to ensure that it has treated private investors fairly."
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Bond-holders, however, are horrified.
"My great grandpa decided to 'do his bit' to help save the bank, because he believed them and trusted Lloyds to keep their word. Unfortunately, a few years later he passed away and now my great grandma has inherited these ECN bonds," writes Max James in a petition to David Cameron.
"Now Lloyds Bank is asking the government regulator to let them change the rules and cancel these bonds and stop paying pensioners like my great grandma. My great grandma is not rich and is very old and does not understand why the bank is going to take away the income that she depends upon to supplement her state pension."
Bond expert Michael Taber says he's working to help affected savers by lobbying the PRA, the Financial Conduct Authority, HM Treasury and the UK Financial Investments.
"In view of the parties involved the most outrageous abuse of retail investors I have ever seen," he says. "It cannot be allowed to go unchecked."
The PRA is expected to rule on Lloyds' request in a few months' time.
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