With the Lloyds TSB Foundation for Scotland facing closure by year end following plans by the bank to cancel its allowance, its chief executive Mary Craig has revealed her behind-the-scenes battle to persuade it that it should be compensated for the fact that the foundation was not allowed to participate in the £4 billion Lloyds rights issue in June due to the fact that its 15.4 million shares are non-voting.
She has now complained to the Financial Services Authority, Lloyds Banking Group vice-chairman Lord Leitch and Chancellor Alistair Darling, arguing that the foundation has been “wilfully ignored” by the bank despite making an estimated 30 attempts to make contact.
It comes ahead of a second multi-billion-pound rights issue that is expected to be announced by the banks in the coming weeks, which could potentially entitle the foundation to another payout.
If the foundation closes, hundreds of Scottish charities are expected to be affected.
Craig told the Sunday Herald: “It’s with reluctance that we have had to put this issue into the public domain.
But the press coverage tells us that another rights issue is imminent and we felt that it was a matter of public interest that Lloyds Banking Group has delayed its responses in terms of our last right issues where, as shareholders, we were excluded from our entitlement.”
“We began making contact with Lloyds Banking Group on 5 May 2009 when we asked if we would be eligible to take part in the rights issues. The response was, no we were not, that it was only for ordinary shareholders, and that as shareholders with limited voting rights we should have been excluded.”
The advice that it received from corporate legal counsel was that it was entitled to the £2m payment on the basis that the placing and compensatory open offer to shareholders entitled them to subscribe to 0.62 shares for every share that they owned.
On the counsel’s reading of the bank’s articles of association, this should have entitled the foundation to subscribe to 9.5 million shares at 38.43p per share. Given that the joint book runners subsequently procured places for all the non-accepted shares at 60p per open offer share, excluding the foundation meant that it missed out on potentially being able to sell 9.5 million shares at 21.57p more than it paid for them, which would amount to £2m.
Craig said: “Our legal advice told us that we should have been included and we attempted again to have a substantive response from Lloyds Banking Group.
“Weeks passed and eventually the Lloyds Banking Group company secretary, Mike Hatcher, advised us that he was unaware of the outstanding issue and that he would look into it and come back within 24 hours. That didn’t happen. And there have been numerous letters and correspondence from us since then. I think there have been about 30 attempts now to get a substantive response from the bank and they have failed to give us one.”
Now Lloyds Banking Group is considering another rights issue to reduce its need to participate in the government’s asset protection scheme, which has stabilised confidence since earlier in the year by insuring the bank’s toxic assets against defaults. Lloyds Banking Group and the Treasury are finalising a timetable this weekend.
