Wednesday tips round-up: Lloyds, Thomas Cook

You should always pay your debts, or maybe not. In the depths of the past financial crisis Lloyds Banking Group issued £8.3bn of so-called enhanced capital notes (ECN). Those pay a coupon of up to what is now a scandalous 16.1%. But they came with two caveats. First, should the lender’s core tier one capital one ratio fall below 5% they could be converted into shares. Second, they can be recalled “at par” if a “capital disqualification event” takes place.

With the introduction of new definitions for banks’ regulatory capital Lloyds believes such a scenario has played out. Those new definitions mean that what before was a tier one capital ratio of 5% is now close to a common equity Tier 1 ratio of 1%. Critically, the lender has received the blessing of the Prudential Regulatory Authority. On the other hand, Bank of New York Mellon, the trustee for the notes, wants a court ruling on the ECN notes. “That Lloyds is braving the court smacks of a bank whose returning capital strength is now matched by a worrying swagger,” writes the Financial Times’s Lex column.

Travel operator Thomas Cook’s latest trading update wasn’t anything to get excited about. Its winter season is progressing as expected while bookings for the summer are much as one might have anticipated at this stage. The same can be said of the current status of its Wave 1 and Wave 2 cost savings programmes, they are going ahead as planned.

However, the recent entry of Chinese outfit Fosun into the share register means the possibility now exists that the company will be bought outright. Even if that is not the case, there are various ways in which the two outfits might co-operate in the future, including an eventual entry by Thomas Cook into the Chinese market. “The turnaround is progressing, if slowly, but the benefits of the Chinese stake could be transformational in due course; buy for the long-term,” writes Tempus.