Bloomberg News

Lloyds Offers to Exchange Up to $7.7 Billion of Junior Notes

December 01, 2011

(Adds funding benefit in second paragraph.)

Dec. 1 (Bloomberg) -- Lloyds Banking Group Plc, 41 percent owned by the British taxpayer, offered to exchange as much as $7.7 billion of capital notes for new bonds to boost capital.

Lloyds asked investors in the Tier 2 securities to swap their holdings at a discount to face value of as much as 30 percent, it said in a statement. The transaction will contribute about 20 percent of the bank’s funding needs for next year, according to London-based spokeswoman Nicole Sharp.

“In light of ongoing market volatility and regulatory uncertainty, the group is undertaking an exchange offer on its Tier 2 capital securities which are eligible for call in 2012,” Sharp said in an e-mail. “The exchange offer also provides the group with an opportunity to improve the quality of the group’s capital base.”

Regulators are pushing banks to boost their capital, or ability to absorb losses, before taxpayers have to step in. Bank of England Governor Mervyn King urged lenders today to step up efforts to bolster their defenses against the euro area’s debt turmoil, which now looks like a “systemic crisis.”

By exchanging Tier 2 notes, banks are getting rid of securities that, under new rules, will start to lose their value as capital notes from 2013. Lenders also get a boost to their capital against losses by swapping the debt at a discount.

Lloyds is following banks including BNP Paribas SA and Banco Santander SA, the biggest lenders in France and Spain, in exchanging capital securities for new debt. Lenders encourage investors to swap out of the bonds by saying they may skip scheduled redemption dates if it no longer makes economic sense to stick to them.

Sharp declined to estimate the benefit of the debt swap to Lloyds’s capital because the take-up isn’t known yet. The offer closes Dec. 9 and includes notes in euros, pounds and U.S., Australian and Canadian dollars, according to the statement.

Deutsche Bank AG, JPMorgan Chase & Co., Bank of America Merrill Lynch and UBS AG are managers of the exchange offer, along with Lloyds.

--Editors: Paul Armstrong, Michael Shanahan

To contact the reporters on this story: John Glover in London at; Gavin Finch in London at

To contact the editor responsible for this story: Paul Armstrong at

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