In return, it is offering a new form of paper, AT1 capital, to institutional investors, while offering to buy out retail investors at a slight premium to their nominal value. Up to £5bn of the new paper will be issued.
The new form of instrument is looked upon more favourably by credit rating agencies – as it contributes to
Tier One, rather than Tier Two, capital – and improves the bank’s leverage ratio.
The exchange offer is the result of a number of changes in the regulatory landscape, mainly at European level, which has meant Lloyds wants to reduce its reliability on the ECNs, which are contingent convertible bonds – or Cocos.
The £1bn loss comes as a result of Lloyds buying back the notes at a slight premium. However, the bank will save money over time as the new notes carry a lower coupon.
It is the latest step by chief executive Antonio Horta-Osorio as he continues to rehabilitate the balance sheet of the bank, with the medium-term aim of ensuring the Government sells down its 33pc shareholding.
At its full-year results last month, the bank said it expects to generate additional fully-loaded Tier One capital of 2.5 percentage points over the next two years – guidance which remains unchanged.
At the end of December, the bank had a pro forma fully-loaded core tier one ratio of 10.3pc.
Shares in Lloyds closed up 0.94p at 81.67p.
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