Lloyds Share Price Plunges As Shareholders Get Their War Paint On

Investors in Lloyds have been waiting all weekend to voice their dissatisfaction with the bank’s government bailout, and they duly sent the share price sharply down in early trading. Someone’s keeping the faith out there though, as it’s had a small rally since, but there’s still a long way to go to match even last week’s price, let alone the wistfully remembered 606p highs of ‘07.

So wha’ gwarn? Lloyds had a busy weekend, signing up to the government’s insurance scheme that Darling set up back in January, which has the government take on banks’ “troubled assets” (still loving that bit of euphemistic psychological terminology). Lloyds needed to do this because of the massive amounts of these assets held by HBOS, whom it bought out last year. So under the scheme, Lloyds pays the government a £15.2bn insurance premium to have it insure its £260bn of potentially bad assets – things like defaulted mortgages – so that if they do turn out to be bad, the government will absorb the losses (after the first £25bn of losses is taken on by Lloyds themselves). The hope is that the confidence given to them by not having to worry about these assets will improve its health – it’ll start lending again (it’s promised £28bn over the next few years), the economy will pick up, not as many of the assets will turn bad, and the ol’ capitalist machine will whirr with renewed vigour. 

Well, let’s hope so, because if it doesn’t then the taxpayer is shouldering the burden. And Gordon Brown must be hoping so too, as the political mileage gained by his rivals will be enough to sink him if it doesn’t work out. Brown allowed the takeover of HBOS by Lloyds last year to pass unheeded by competition rules, and with five times less due diligence – this will come to be seen as rash and clumsy if it doesn’t work out. Michael Fallon, the Tory chairman of the Treasury sub-committee has already waded in, calling the soiree where chairman Sir Victor Blank persuaded Brown to waive the rules “the most expensive cocktail party in history”, adding: “Brown should never have egged Victor Blank on by offering to waive the competition rules. The law is there for a good reason”. Expect a lot more of this in the next few days.

But while we should wait until we actually take on assets before we get angry with them (though The Times isn’t bothering), shareholders are already mad at Blank and chief exec Eric “Fat Dr. No” Daniels. Considering 83% of the assets insured by the government came from HBOS, shareholders can’t believe that their investment has been dragged down by Lloyds chasing cheap acquisitions. The deal cut by Lloyds is less favourable than the insurance package for RBS, who paid £6.5bn to the government for insuring against £325bn of its assets. Daniels can’t seem to please anyone, having “pissed the Treasury off” during the hashing out of the deal, according to a source quoted by the FT. Still, they’ve both got Brown’s support, who said: “When we rescued RBS last year, we removed the chief executive and chairman. That is not happening at Lloyds”.

Elsewhere, the papers are gamely encouraging us to get all riled up at the news that 40,000 junior Lloyds employees are still set to get bonuses of around £1000 each, not really the story that “Lloyds bankers in line for £80m bonuses” promises. Don’t worry – Daniels et al are still not getting any bonus action this year (though Daniels is getting a £3m pension).

So while the shareholder revolt foments, hopefully resulting in the trashing of Blank’s pathetic attempt at a car and fresh tears from Daniels, another one is brewing over at Barclays. Despite them taking on tons of Middle Eastern investment to avoid a government bailout, they might need to sign up to the insurance scheme anyway. Alastair “Don” Darling is clearly making everyone offers they can’t refuse – fingers crossed it all works out.

Posted by Ben Beaumont-Thomas in Hot Money | March 9, 2009 12:50PM |