Lloyds Bank ECNs and the FCA

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Investors in Lloyds Bank Enhanced Capital Notes (ECNs) lost the second round of their battle to stop Lloyds redeeming them at par in the Appeal Court. They previously won the case in a lower court, and are now planning to appeal to the Supreme Court.

These ECNs are held by many retail investors, having been converted from PIBS issued by Halifax and the Cheltenham & Gloucester Building Society. Lloyds is apparently arguing that the wording of the conversion terms, on which basis investors voted for the conversion, contained an error. They suggest that instead of saying ‘Core Tier 1 Capital’ as written, it should have simply said ‘Core Capital’.

Investors stand to lose a very high interest investment (some of these bonds are paying 16% per year), but Lloyds stand to gain as much as £1bn if they win. You can see why it is being fought over by expensive lawyers through the courts.

But the key point for those not directly affected by this case is that the Financial Conduct Authority (FCA) is yet again failing to protect the interests of investors (retail or otherwise), and taking the side of the big banks and other financial institutions. If they get the wording of a contract wrong, then that is their mistake and they should bear the cost. As it stands Lloyds are trying to escape from their original obligations by sophistry.

Roger Lawson

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