Savers suffer after Lloyds court victory

More than 100,000 investors lose out in controversial bond ruling

SAVERS have suffered a bruising setback after Lloyds won a courtroom battle to avoid paying compensation to the owners of £3.3bn of controversial bonds.

More than 100,000 retail investors – including many pensioners – bought the bonds to help the bailed-out bank stay afloat during the financial crisis.

Issued in 2009, their value soared due to generous interest rates of more than 16pc, which provided savers with a steady stream of income.

But five years later, the bank shocked owners of the bonds by announcing it wanted to buy them back at face value – far below what they were worth on the open market.

The High Street lender had decided they were unnecessarily expensive and did not help it meet regulatory funding requirements.

It said the early buy-back was allowed because of complicated rules buried in the terms and conditions for the so-called enhanced capital notes.

Furious buyers fought the decision at the High Court, which found in their favour. Lloyds won a subsequent appeal and the case then went to the UK Supreme Court.

Yesterday the Supreme Court narrowly found in favour of the bank, with judges supporting the lender by a majority of three to two.

The ruling means savers will be denied compensation.

Asim Bajwa, of Canaccord Genuity Wealth Management, said: ‘This is a sad day for the rights of bondholders. It was a David and Goliath battle, but in this instance the giant won.

‘The problem for the retail investors who have been hit by this ruling is that many are elderly with a low-risk appetite – they were relying on this income and their living standards will be hit in many cases.’

While the ruling is bad news for savers who bought the bonds, it is a boon to Lloyds shareholders as banking stocks take a battering around the world.

Uncertainty has surged ahead of the EU referendum next Thursday following a series of polls which gave Leave a lead.

As often happens before a major vote, nervous investors are insuring against short-term market swings with a rush to safe havens including gold and government bonds.

The turmoil saw Lloyds shares close down 2.6pc or 1.64p at 61.36p yesterday, their lowest level since February. Other banks were even harder-hit – particularly on the Continent.

Deutsche Bank shares slumped to their lowest-ever level of €12.83 at one point yesterday, surpassing even the depths plumbed at the height of the financial crisis.

Analysts said Lloyds’ bond victory would give its investors a shot in the arm. The bank is finally struggling free from compensation payments after years of billion-pound fees for PPI mis-selling and other scandals.

A ruling against it could have dragged this out for years more, hitting both profits and the share price. Critics had argued the bonds were complex financial products which never should have been pushed onto small investors.

The bonds have already been bought back by Lloyds – a move likely to save it £800m in the next four years – but a ruling against the bank would have forced it to pay out millions of pounds in compensation.

Hargreaves Lansdown analyst Laith Khalaf said: ‘Lloyds shareholders will breathe a sigh of relief that a whole new avenue of redress has not opened up, just as the cost of PPI claims is coming to an end.

‘The tangled web of terms and conditions the court has had to unpick demonstrates the complexity of hybrid debt securities, which is why the financial regulator has now restricted their sale to sophisticated investors only.’

The decision is also good news for the Government, which bailed out Lloyds with £20.5bn of taxpayers’ money at the height of the financial crisis.

It has been selling down its stake since the bank’s return to profit and now owns 9.2pc of shares.

The Treasury is widely expected to seek a final sell-off this autumn, returning the bank to private hands.