• £1.158234 pence

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    Above, the Bank of America Corporation’s head quarters in Charlotte, North Carolina.

    British Gazette readers will have noted that since the online resurrection of the title took place on 21st October 2009, the organ from time to time publishes articles with curious titles. However, we suspect that most readers will regard today’s title is “going some” even by BG standards!

    The one pound, fifteen, point eight two three four pence relates to a price per Lloyds Bank share which if realised would cause your Editor to be on the threshold of paying HM Revenue & Customs capital gains tax if the shares were sold between 6th April 2018 and 5th April 2019, the allowance being £11,700 during this particular tax year.

    £1.158234p represents an increase of circa 63% over 71.14p a price which the shares have traded at during today.

    Now, British Gazette readers will have noted that Lloyds share price has been somewhat depressed of late and some market commentators suggest the share is under valued. An opinion they share with your Editor. Even so, British Gazette readers will probably regard a 63% hike in the SP as being somewhat optimistic!

    So why this seeming bullishness?

    Because notwithstanding it’s size, Lloyds Banking Group represents an attractive takeover prospect for a large foreign bank. This organ has previously speculated upon the possibility of a Chinese takeover, but this we now think is even less of a prospect than when it was first put forward.

    We would even go so far as to say that there is little likelihood of such a takeover occurring in UK FY 2018/2019 because wince those putting forward and those agreeing to the putting forward of such would not do so before Thursday 29th August, 2019 which is the deadline by which PPI claims have to be submitted. See the BBC news report: http://www.bbc.co.uk/news/business-41038319
    However any time after this date, such a takeover could take place.

    This is because takeovers of this nature and size are essentially political. That is to say, it involved politicians.

    Any takeover offer before the PPI deadline which sends the SP shooting through the roof of the London Stock Exchange will have ranks of Labour and Liberal Democrat MPs demanding the removal of the PPI deadline and measures forcing Lloyds Bank to set aside more money to compensate “the bank’s victims”. These victims of course are a curious bunch for they do not know they are in fact victims until they are persistently told this by Indian telephone salespeople working in Bangalore!

    Thus we can assume with a reasonable degree of confidence that any takeover bid will not be made before then.

    The other thing we can be certain about is that any foreign bank will have to have little exposure to the UK market. This is because any such proposed takeover will be subject to the approval the EU’s competition authorities. They will judge this by the market share of the proposed merger. If the proposal does not result in an increase in market share there will be no objection.

    So, what bank may be interested?

    One: The Bank of America. The Bank of America Corporation (abbreviated as BofA) is a multinational banking and financial services corporation headquartered in Charlotte, North Carolina, United States. It is ranked 2nd on the list of largest banks in the United States by asset size. GOTO: https://www.bankofamerica.com/
    The BofA’s exposure to the UK financial services market is very small and comprised Merrill Lynch:

    Merrill Lynch, London – Corporate, Global Banking and Markets, Merrill Lynch Financial Centre, 2 King Edward Street, London, EC1A 1HQ
    Of course there is also the US competition authorities to ask. Here again, with just two offices (New York and Houston), Lloyds Bank has only a tiny exposure to the US market. GOTO: http://www.lbusa.com/
    There has in fact been some transfer of assets between BofA and Lloyds already. This occurred when Lloyds purchased BofA’s UK based MBNA credit card operation. GOTO: http://www.thisismoney.co.uk/money/markets/article-4561834/Lloyds-spends-1-9bn-buying-MBNA-business.html
    So, why should BofA be interested in acquiring Lloyds?

    One of the basic rules of investment management is to spread risk. This of course is also a rule for insurance underwriters and companies. The fact is that BofA is overwhelmingly focused on the US internal market. Similarly, Lloyds is focused on the UK internal market. Additionally, Lloyds has a very strong balance sheet. It could be argued that a takeover of the smaller bank by the larger bank would be mutually beneficial to both.

    One of the things that Labour and Liberal Democrat MPs RIGHTLY concern themselves with in such situations is that of jobs and redundancies. Since the financial crisis and the takeover of the busted HBOS by Lloyds, thousands of staff in both banks have been laid off. Bank branches and offices across the UK have been closed including the iconic Park Row branch in Leeds city centre.

    These MPs will be doing what they are supposed to do – looking after the interests of their constituents – by insisting that the takeover should not result in yet more job losses.

    It is likely that the directors of BofA will be able to assure these MPs that there will be few if any compulsory redundancies. This is because of the tiny exposure each bank has in the other’s backyard.

    The one part of Lloyds Bank which would likely be affected is the banks private banking arm.
    GOTO: https://www.lloydsbank.com/private-banking/home.asp
    It is likely that this would be hived off and re-branded as a legally separate entity under the Merrill Lynch brand name. This is because those seeking private banking can be very status conscious and want an up market brand. In other words, Merrill Lynch on their platinum credit cards and cheque books and not “Lloyds”.

    These rich folks would of course have full access to the range of banking services used by us ordinary Lloyds customers!

    So, if such a takeover offer is made what form will it take?

    Generally takeovers take one of three forms;

    (i.) a share offer. A proposal to exchange of shares in the takeover firm for shares in the firm to be taken over, at a rate advantageous to the holders of the firm to be taken over. This has for the holders of those shares the great advantage of not being subject to capital gains tax as the shares are not (for tax purposes) being sold but exchanged.

    (ii.) a cash offer. This is what it is – a straight offer in cash for the shares. Those holding shares in the firm to be taken over receive cash for their shares. Unless the shares are held in a tax wrapper such as an ISA or in an offshore company, the sale will be subject to CGT should the increase in share value (between acquisition and sale) exceed the threshold for the tax year in which the transaction takes place.

    (iii.) a cash and share offer. A mix of (i.) and (ii.).

    Of the three, the politicians would like to see a cash offer being made. This is because Lloyds Bank has one of the largest numbers of shareholder lists on the London stock exchange. The vast majority of shareholders are small shareholders, individuals holding less than 2,000 shares. Were BofA to take over Lloyds via a cash offer, millions of individual Britons would receive a modest windfall which many would go out and spend. This would boost the domestic economy. This is one area where redundancies would be likely – in section that looks after the enquiries of shareholders. This is because Lloyds have had to invest resources to cater for the needs of these millions of shareholders.

    We hear you Dear Reader ask: So, IF this was to happen and you Mr Editor were to receive a handsome windfall, what would YOU do with the cash?

    The answer is straightforward and has much to do with how I got to own the shares in the first place.

    Although I have increased the number of shares since they came into my ownership at 11:45PM on Friday 11th July 2003, the shares were in fact acquired by my grandfather, John Henry Rogers in and around 1922 when he purchased them following the sale of Northcote Farm outside Honiton in Devon. When my grandfather died in 1952 he bequeathed the shares themselves to his two sons, my father and my uncle, but in a trust whereby the dividends would be paid to their sister, my aunt for her lifetime. In 1983 my father and his brother came into full possession of the shares and received the dividend income from then on. In the 1990s I suggested to my father that he sell the shares over a period and to reinvest the proceeds in the form of shares in an investment trust. This for the reason of spreading risk. This was duplicating the advice he received from the chartered accountant who audited the accounts of my father’s consultancy business. My father did not wish to take this advice as Lloyds were a good performing share and my father always took the attitude of; “if it works, don’t monkey with it!”

    Fortunately, my mother was persuaded of the logic or my and the chartered accountant’s argument, and, with the persistent pressure that wives the world over apply, managed to persuade my father to take my advice up to a point! That point was that he refused to sell all of the shares. Thus it was I was able to sell (over more than one tax year – to avoid CGT) three quarters of the shares – which of course comprised half the original holding owned by my grandfather.
    However, I had to overcome further objections of my father. My father did not like or trust stockbrokers. He did not like the idea of paying commission. This of course would be required in order to sell the shares and to purchase new (different) shares. Arguments that the dealing costs of shares was less than the dealing costs on mutual funds such as unit trusts and insurance company bonds (the later being unsuitable because my father was not a high rate tax payer) was considerably less – fell on deaf ears.

    Success however was achieved when I discovered that the mangers of an investment trust had a share exchange scheme whereby investors could through a subsided arrangement sell suitable shares (FTSE 100 & 250) for investment in what was known as a “share plan.” This was a nominee arrangement where the shares were held in non-certificated form in a collective nominee account under the control of the managers. My father agreed to my suggestion that the new shares should be held in joint manes with his wife (my mother). Thus on his death mother inherited these shares automatically – without the need of a grant of probate and the transfer was free of IHT due to spousal exemption. I however had the remaining quarter shareholding of Lloyds shares bequeathed to me in his will.

    I subsequently inherited the investment trust shares in April 2006 following my mother’s death. It was of course in 2008 and the financial crisis that I was to witness the validity of the arguments I had put to my late father coming to pass!

    What this means is this: I have an attachment that is more than fiscal to both sets of shares and also the nominee vehicle in which the investment trust shares are held. Thus, should I be presented with a compulsory purchase of the Lloyds Bank shares, I will present the cheque over the counter at Lloyds Penzance branch with an attached paying in slip and after the cheque is cleared, write another and send it through the post with the completed investment form to the managers of the investment trust where the money will repeat what was done in the 1990s.

    In this, I will be doing similar to what I did with my parents ashes for I scattered my mother’s ashes in the same place where we both scattered my father’s ashes three years earlier.

    Now then, why have I been rabbiting on like this?

    To make a point to such as Comrade Corbyn and Comrade McDonnell. These two Marxists like to imagine shareholders as the idle rich living in luxury in tax havens such as Monte Carlo. Such people do of course exist. However they represent a tiny number of shareholders. Most shareholders are just ordinary people. Just like Messrs. Corbyn & McDonnell.

    Our politicians have a problem. A big problem. They make policy based on the way they perceive the world to be. NOT how it actually is!

    And who suffers from their folly?
    We the People do!

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