Page last updated at 17:54 GMT, Tuesday, 23 February 2010

Bank to end charity funding deal

Lloyds TSB sign

Lloyds Banking Group is to walk away from a covenant to fund a charitable foundation it set up, unless trustees agree to a reduced contribution.

The move was described by the chief executive of the Lloyds TSB Foundation as vindictive, bullying and aggressive.

Lloyds and the Scottish charity have clashed over the bank's plans to cut its contribution, which has reached about £6m in recent years.

Lloyds said the body would still get "significant" funding until 2019.

The covenant was set up in 1985, when the Trustee Savings Bank floated on the stock market, and was later taken over by Lloyds.

It has distributed around £85m since then, drawn from 1% of profits that were distributed around the UK, including nearly a fifth going to the Lloyds TSB Foundation in Scotland.

The money has been a vital source of funding for several charities.

Lloyds Banking Group has disowned its heritage and is choosing to ignore the role Scottish communities and their savings played in it being where it is today
Mary Craig
Lloyds TSB Foundation

Mary Craig, chief executive of the foundation, accused the bank of disowning the bank's 200-year heritage in Scotland and said the trust has a legal right to the money, claiming the bank is not a "donor".

Having found agreement across the rest of the UK, but having failed to find agreement in Scotland, Lloyds is now saying it will pay the agreed amount for the next nine years, and then end the payments completely.

Two factors have led to pressure from the bank for change.

One was that Lloyds TSB last year merged with Halifax Bank of Scotland, a company which was much larger than Lloyds and would normally generate far higher profits.

The other is that the merged Lloyds Banking Group was not profitable last year, and is expected to report another large loss this year.

The bank offered to continue the charity funding while it sustains losses, but on condition that the total amount distributed would be cut from 1% to 0.5%, and that the foundations align their distribution of funds with priorities set by Lloyds Banking Group.

That has been agreed in three foundations covering England and Wales, Northern Ireland and the Channel Islands, but the proposal has led to a harsh war of words in Scotland.

We have worked very hard to try and reach an agreement with the Scottish foundation
Shane O'Riordain
Lloyds Banking Group

A meeting on 3 February failed to resolve the impasse, and the Bank has now told the Foundation that it will end the arrangement in 2019, until then paying Scotland's share of the 1% of profits.

Lloyds Banking Group is proposing to set up a new charitable foundation, to be called the Bank of Scotland Foundation, which would be its sole "community investment vehicle" in Scotland when it withdraws its funding to the Lloyds TSB Foundation.

Ms Craig said: "We are extremely sad to announce that, in what can only be described as an act of determined vandalism, Lloyds Banking Group has served notice to the foundation that will break its covenant with us, which was set up over 25 years ago.

"In breaking the covenant now, Lloyds Banking Group has disowned its heritage and is choosing to ignore the role Scottish communities and their savings played in it being where it is today."

'Aggressive behaviour'

She said the move was "a vindictive attempt to punish us for not agreeing to their proposal to cut our funding and reduce our independence".

"Regrettably, it is in keeping with the bullying and aggressive behaviour displayed by the group's representatives at each stage of this process," she added.

Shane O'Riordain, communications director for Lloyds Banking Group, commented: "We have worked very hard to try and reach an agreement with the Scottish foundation. Regrettably, we have been unable to do so at this time.

"Under the terms of the current covenant, the Scottish foundation will continue to receive significant funding from the group over the next nine years, which will continue to benefit Scottish charities.

"We are fully committed to supporting communities throughout Scotland and our door remains open to the Scottish foundation."



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