In November 2009 Lloyds and RBS both announced that coupons would be blocked on non-mandatory tier 1 and upper tier 2 securities for a period of 2 years (from 31 Jan 2010 for Lloyds and from 30 April 2010 for RBS) as part of the agreement with the EC for approval of State aid received by the banks. I have developed the following table to show the effect of the EC imposed block on a selection of the securities concerned together with calculations of the IRR (internal rate of return) based on the current indicative market price. For securities on which the coupon reverts to a LIBOR or EURIBOR based rate after the first call I have assumed the rates to be 5% and 4% respectively in calculating the IRR if not called. You can find the respective Lloyds and RBS annoucements detailing those securities affected by coupon suspension at:

 

Lloyds Coupon Deferral Announcment - 3 Nov 2009 and RBS Coupon Deferral Announcement - 20 Oct 2009