Lloyds Potential Rights Issue Gets Thumbs Down From Shareholders, While Share Price Falls

Lloyds’ shares are falling this morning after news of a possible rights issue broke yesterday in the Sunday Times, bringing to an end the fillip that they’d had after it announced its first half results last week.

Lloyds lost £4bn, but that was better than many people expected, and the bank said they thought the worst pain of losses from bad debts had passed – the renewed confidence in the bank sent their share price soaring, along with others in the financial sector, bringing the FTSE to a year high. Not that gains on the stock market should be regarded as evidence of long-term stability, but it did feel like a corner-turning of sorts.

But it’s heading back down now, as the rumoured rights issue means that the shares would be diluted, and returns for shareholders would fall. The issue is being designed to help Lloyds avoid getting quite so involved in the Asset Protection Scheme that they’ve signed up to – at the moment, they bank would end up being 60% owned by the government, and they want to scale that back, and if they’re right about their bad debt exposure lessening from now on, it’s a good idea not to spend money on insurance against something that isn’t that dangerous. But the government demands a certain level of capital and stability for Lloyds to reduce its protection, hence the share sale.

It’s the first major bit of action from new chairman Win Bischoff, hired last month to the indignation of some who saw the appointment as betraying a lack of imagination. Not just from Lloyds as well – Bischoff was being considered for a range of chairman roles, making it seem like the pool of talent was shrinking to a tiny handful of established names.

You’d think that a lower reliance on government aid would prompt confidence in shareholders, but two shareholders interviewed by Reuters this morning have said they’re not convinced by the rights issue’s ability to secure enough capital. “It would be quite surprising if there is that much appetite for Lloyd’s stock”, said one of the bank’s top ten shareholders. Ouch.

On a side note, the one person that this story really benefits is Rupert Murdoch, whose much-discussed decision to start charging for the Sunday Times online last week has been comprehensively validated by an exclusive story that reminds everyone of the value of the paper’s business section. That’s the kind of story that people of a certain workaholic tendency would pay for to read online on a Sunday, while everyone else relaxes with the ink edition.

Posted by Ben Beaumont-Thomas in Hot Money | August 10, 2009 11:33AM |