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Classification of Lloyds Banking Group and Subsidiaries

Released: 30 April 2014 Download PDF

Overview

The classification history of Lloyds Banking Group and its subsidiaries, as well as the latest classification which applies from 25th March 2014.

Lloyds Banking Group and subsidiaries: classification history and current classification

Lloyds Banking Group was formed in January 2009 through the merger of HBOS plc. and Lloyds TSB Group Plc. This followed the 'support package' through which the UK Government took shares in financial institutions that were struggling due to the on-going financial crisis that had started in 2007, and resulted in the reclassification of Lloyds TSB and HBOS into the public sector from 13th October 2008.  This further led to the classification of Lloyds Banking Group as a public corporation upon its creation, at which point the UK Government held a 42.5% stake in the group.

The ONS has officially assessed the degree of Government control over Lloyds Banking group (and its predecessors) on 5 occasions between 2008 and this latest assessment.  It found the following indicators of Government control:

  1. control over dividend policy (until June 2009 when Government redeemed its preference shares

  2. restrictions on directors' remuneration (expired by the end of 2009)

  3. commitments on the volume and price of lending - required as a condition of Government support (expired in 2011)

  4. Government owning a significant minority shareholding

  5. requirements made under European Commission state aid rules:

  • restructuring of the business, a reduction of total assets, and the divestment of a significant ring-fenced entity

  • prevention from paying any coupon on capital instruments (including preference shares) between 31st January 2010 and 31st January 2012

  • limits on the group's ability to make acquisitions up to December 2012

In autumn 2012 ONS re-assessed the extent of Government control over Lloyds Banking Group as the lending commitments and other controls had expired, as would the state-aid requirements. However, at this time the Government held stake of around 39% and the ONS judged that this large minority shareholding was enough to give the Government control over decisions made at the Annual General Meeting (AGM).  As a result, Lloyds Banking Group remained in the public sector.

The Government sold further shares on the market to leave it holding 32.7% of the group in December 2013.  Following this, the ONS scheduled a review of the classification of Lloyds Banking Group for completion in February 2014 as detailed in the December 2013 Forward Workplan . However, before this review was completed, ONS was advised of a further forthcoming share sale and announced its intention to delay the review until this had taken place which was detailed in the National Accounts Classification Decisions, February 2014 release.

On 25th March 2014, the UK Government divested further shares equal to 7.8% of Lloyds Banking Group; this brought the Government Shareholding to 24.9% (and remained the case as of the date of this update).  Following this development, the ONS undertook a review of the classification of Lloyds Banking Group; which considered key information including:

  • the level of shareholder turn-out for votes at recent AGMs (e.g. around 59% of non-government shareholders participated at the May 2013 meeting), and

  • the degree of dispersion of non-government shares (i.e. shares are widely dispersed across a large number of other investors)

If an AGM were held at which non-government shareholder turn-out was 59% (as in May 2013), shares worth a total of 69% of the company would be voted.  Of this, just under two-thirds would have been voted by non-Government shareholders, with the remaining third voted by Government. Thus, the Government would have to secure support from a considerable number of non-Government voters (around 22%) in order to achieve over 50% of the vote and pass a motion it had proposed or block a motion which it opposed.  Non-government shareholder participation would have to fall to 33% in order for Government to have a guaranteed majority.

The non-government shareholding is also highly dispersed, with no other investor holding more than 5% of the group.  As a result, the Government would need to secure support from a considerable number of investors in order to win a shareholder vote.

In light of this, it was judged that while the Government would be in a relatively strong position as the holder of a large number of shares, they were no longer in a position to determine significant elements of corporate policy and hence Lloyds Banking Group is no longer subject to Government control.

Lloyds Banking Group and all of its subsidiaries will therefore be reclassified to the Private Financial Corporations sector (and so be listed on the Public Sector Classification Guide as 'Former Public Corporations'. The reclassification includes the following Lloyds Banking Group subsidiaries which are listed on the Public Sector Classification Guide - Scottish Widows Bank Plc, TSB Bank Plc, Lloyds Bank Plc, Black Horse Limited, Lloyds Bank BBSA, AMC Bank Limited, and Bank of Scotland Plc.

Although this classification applies from March 2014, it is not planned to be implemented in Public Sector Finance statistics until August 2014 when the latest data become available. It will be implemented in the estimates for Public Sector Employment and Average Weekly Earnings in the June 2014 editions of the Labour Market and Public Sector Employment Statistical Bulletins.  

Background notes

  1. Details of the policy governing the release of new data are available by visiting www.statisticsauthority.gov.uk/assessment/code-of-practice/index.html or from the Media Relations Office email: media.relations@ons.gsi.gov.uk

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