On July 30, Lloyds TSB (LYG) issued its Interim Report leading with the following:
'The first half of 2008 has been a period of considerable turbulence for the financial services sector and this has been compounded by the marked slowdown in the UK economy as a whole. Against this backdrop, Lloyds TSB continued to deliver good growth momentum in all its core businesses and is well positioned for a lower growth environment.
Given this strong performance and our confidence in the Group's future earnings performance, the board has decided to increase the 2008 interim dividend by 2 per cent to 11.4 pence per share. This increase demonstrates the strength of the Group's business model, balanced with a level of caution on the outlook for the UK economy.'
- (signed) Sir Victor Blank, Chairman
Today the worm has very much turned. At least for those left holding the bag of common shares.
Since July 30 management of Lloyds TSB appeared to have engineered a historic take over. The acquisition of HBOS (OTC:HBOOY). A deal once thought to be so anti-competitive, capturing so large a market share that the government would not approve it. Then credit turmoil and market mania drove HBOS share prices so low that Mr. Brown pushed for the merger to save the public the cost of nationalization. Or so we were told.
Now it seems the new entity, if created, will be only partly nationalized. And the government will receive a twelve percent payout for any money it puts in. Common shareholders, what might be called 'main street' investors, those who bought shares for retirement income and the like, will see all dividends suspended for a minimum period of five years.
One has to ask the following questions-
- If financial conditions at Lloyds are so dire as to suspend the dividend, how can a merger with its huge accompanying expenses, make sense?
- If the financial condition at Lloyds is " strong " as the July 30th statement claims, why is the dividend being suspended?
Sadly management seeks to have it both ways and leaves shareholders shaking their heads in wonderment wishing that Mr. Daniels and his cronies would start giving it to us straight.
Today's market exuberance did not a wit of good for Lloyds shares which hit, quite understandably, a 52-week low during one of the markets best days in history.