Bank takeovers hit shareholders' income

Wednesday, 22 October 2008

Many elderly investors will struggle with day-to-day expenses if the Government takeover of several banks means a freeze on dividend payments to shareholders.

The UK Shareholders Association (UKSA) commented over the weekend that the proposed ban on dividends until the Government’s preference shares are repaid, will likely cause big problems for many who rely on the income from the dividends.

Banks, including Lloyds TSB, Royal Bank of Scotland and HBOS, will have to pay back the Government’s £9m preference shares before they can pay any shareholder dividends, and analysts have suggested that could take around five years.

UKSA states that this represents quite a long time in stock market terms, especially for those aged over 70, who may have limited life expectancy.

UKSA director Roger Lawson said he had received many distressed phone calls from shareholders worried what they would live on without the dividend payments.

UKSA were critical of the Government’s “rash” intervention, saying it could discourage people from saving for their retirement. The organisation also said that the UK Government’s interest rate on preference shares amounts to 12%, whereas it is 5% rising to 9% in the US.

Mr Lawson was also critical of the new terms for Lloyds TSB takeover of HBOS, saying they were less attractive to shareholders.

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