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Rights and wrongs at Lloyds Banking

If you’ve ever wondered how the big-shot investment bankers “earn” their bonuses, the document launching Britain’s biggest rights issue will give you a clue. Lloyds Banking Group is issuing 36,505,088,579 new shares, to add to the 27,161,682,366 currently in issue.

The new shares will raise 13.5 billion pounds, of which 500 million pounds will disappear in the expenses of the offer. Much of this is paid to the banks which are guaranteeing that Lloyds gets its money, a reward for the risk they are taking that the shareholders will fail to take up their rights.

 

So just how big is this risk? Here’s one way to look at it. The rights price is 37 pence, and as long as the Lloyds share price remains above that, the risk is minimal. At 37 pence, engorged Lloyds, with 63,666,770,945 in issue, would be capitalised at 23.5 billion pounds, including the 13.5 billion pounds of new money. On Tuesday, the day the issue was priced, with Lloyds old shares at 91 pence, the business was valued at 23.5 billion pounds.

 In other words, for the underwriters to pay up, the value of old Lloyds would have to slump from 23.5 billion pounds to 10 billion pounds – and all by December 11, the day on which the new money is due.

The right Roed to curb bankers

A rather good idea, from a letter in the FT from one Ole K Roed of Luxembourg. His name may look suspiciously like an anagram, but his suggestion is sound. Banks are to be obliged to pay premiums for insurance against their failure, but the shareholders (and the taxpayers) have surely suffered enough.

Rather than hit them again, Roed proposes a levy on cash bonuses, if necessary at a progressive rate to ensure the fattest cats pay enough to hurt. Please don’t call it another tax; instead, describe it as a fee, “a term with which bankers are of course thoroughly familiar.” Ole!

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