Lloyds Banking Group (LBG), the UK’s largest bancassurer, has
received shareholder approval to proceed with a £13.5 billion
($21.6 billion) rights issue, the world’s largest.
The rights issue follows a £4 million rights
issue in May this year and forms part of a £22.5 billion capital
raising exercise that includes a £9 billion swap of bonds into
enhanced capital notes and equity.
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The latest rights issue, in which shareholders
will be offered 1.34 new ordinary shares for every one share held,
and bond swap will enable LBG to avoid making use of the British
government’s onerous asset protection scheme.
However, with the government holding a 43
percent stake in LBG, British taxpayers are committed to funding a
hefty portion of the rights issue.
The focus of LBG’s woes is HBOS, the troubled
UK banking group it acquired in January this year for £9.8 billion.
LBG laid the blame for a £5 billion loss it reported in the first
half of 2009 squarely on problems at HBOS, which it said accounted
for 80 percent of total impairment charges of £13.4 billion in the
period.
HBOS also brought with it the Clerical Medical
and Halifax insurance brands which together with Scottish Widows,
LBG’s main life insurance and pension products brand, propelled the
bank from the position of second-largest bancassurer in the UK to
largest.
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By GlobalDataThe combined group has some 3,000 branches,
the largest branch network in the UK.
LBG’s insurance operations have also faced
headwinds of late with the bank reporting that new UK business
premium income slumped 28.7 percent from £7.595 billion in the
first half of 2008 to £5.419 billion in the first half of 2009.
Based on the present value of new business in
the first half of 2009, bancassurance accounted for 51 percent of
sales, the independent broker channel 46 percent and direct sales 3
percent.
Meanwhile, adding to LBG’s difficulties UK
mutual life insurer Equitable Life has announced that in March 2011
it will shift the contract for administering its £8 billion book in
run-off from LBG to Indian outsourcing specialist HCL
Technologies.
According to HCL the contract from Equitable
is worth $200 million over its 10-year duration and involves the
administration of over half a million policies.
The administrative tasks will be undertaken
partly in India and partly by Liberata Financial Services, a
UK-based outsourcing specialist acquired by HCL in July 2008 for £2
million.
Indicative of the impact of the loss of the
Equitable contract which LBG has held since 2001.
Equitable estimates that it will enjoy cost
savings of £8 million in the first full year of the contract with
HCL and will be able to reduce its provision for future costs by
over £100 million.
