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Lloyds Bank says private investors agree to bond buyback

A pedestrian passes the head office of the Lloyds Banking Group in central London August 5, 2009. REUTERS/Stefan Wermuth

LONDON (Reuters) - Lloyds Banking Group said private retail investors had agreed to sell bonds worth a nominal 58.5 million pounds, which were issued to rescue the bank during the financial crisis.

Lloyds, 25 percent-owned by the government, issued the bonds, which were designed to boost the bank's capital if it ran into trouble, in 2009. But new UK and European capital rules in force this year mean the bonds may no longer count as capital.

Lloyds said earlier in April that institutional investors had agreed to exchange 5 billion pounds worth of the instruments, known as enhanced capital notes, for new bonds.

The bank surprised investors in February when it said it could buy back the ECNs at face value because new European rules mean that they are now unlikely to count towards its capital buffers.

However, analysts did not expect it to offer the bare minimum as upsetting bondholders including hedge funds and other big investors could prove damaging for future fundraisings.

The bank's treatment of retail investors had been criticised by Mark Taber, who led successful campaigns for retail bondholders in Bank of Ireland and the Co-operative Bank.

Taber had said that if Lloyds, which is 25 percent-owned by the government, believed there was an issue with the capital status of the ECNs it should have engaged with all shareholders, including private investors, to find a solution.


(Reporting by Matt Scuffham; Editing by Paul Sandle and Brenda Goh)