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Lloyds TSB's shareholders were today given hope that the dividend drought ordered as part of the taxpayer bail-out would end next year.
The bank today published details of its rescue bid for HBOS, enabled by £17bn of taxpayers' funds. In a letter to shareholders outlining the terms, the Lloyds TSB chairman, Sir Victor Blank, said the bank expected to buy back the £4bn of so-called preference shares issued to the Treasury during 2009.
Under the government's £37bn plan to bail out part of the British banking system, it is buying preference shares that it must be paid back before ordinary shareholders may receive dividends again.
"The Lloyds TSB board recognises the importance of dividends to shareholders and its clear intention is to achieve the repurchase of the enlarged group preference shares during 2009 so as to enable it to resume the payment of dividends," said Blank.
Despite competition concerns, the government has waived through a takeover of HBOS, owner of Halifax and Bank of Scotland. HBOS today said its hit from the value of risky assets and bad loans topped £5bn for the nine month period.
The letter to investors came as Lloyds TSB warned that its profits for the first nine months of the year had suffered "a substantial reduction" due to the turmoil in financial markets as well as the rising level of bad debts.
It said it would have to write off a further £420m in the second half, the lion's share relating to the growing number of business customers defaulting on their loans. Of that figure, £120m related to its mortgage book as house prices continue to fall.
The circular to shareholders confirmed its offer to pay 0.605 Lloyds TSB shares for every HBOS share as part of a government brokered takeover. It will ask shareholders to approve the deal next month, with the expectation it will complete in January.
By 10am Lloyds TSB shares were off 2% while HBOS gained 4%, helped by a weekend report of a potential counterbid led by Scottish financier Jim Spowart.
Lloyds stepped in to rescue HBOS after its rival was hit by the deepening global financial crisis and concerns about its exposure to the weakening UK housing market.
Both banks were forced to recapitalise under the government's rescue plan, taking a combined £17bn from the sale of preference shares to the UK government and from the issue of equity guaranteed by the state.
There had been concerns that investors will not receive a dividend for several years until preference shares sold to the government had been repaid.
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