Lloyds bid to sever state ties too costly
UK could buy more stock
October 14, 2009
By Gonzalo Vina
London - Lloyds Banking Group, the UK's biggest mortgage lender, will have to pay as much as £2 billion (R23.4bn) to end its participation in the government programme aimed at insuring potentially troubled assets, according to a person familiar with the matter.
The person, who declined to be named because negotiations between the bank and the British government are confidential, said yesterday the fee to opt out of the Asset Protection Scheme would be higher than the £1bn reported earlier by the Daily Telegraph, and might reach £2bn.
The bank had submitted a plan to the Financial Services Authority to raise £15bn in a share sale, a separate person familiar with the matter, who also declined to be identified, said last week. Under the plan, the lender would also sell assets to raise money.
Lloyds spokesman in Edinburgh Ross Keany declined to comment.
The firm said last month it was considering pulling out of the programme. To do so, it would have to raise about £25bn from the sale of shares and assets such as its Scottish Widows unit, said analysts at Credit Suisse Group.
The government, which owns 43 percent of Lloyds after an initial rescue, would need to buy more than £6bn of stock in a £15bn rights offering.
Under the Asset Protection Scheme, the government would insure £260bn of Lloyds' assets in return for a £15.6bn fee.
While Lloyds never bought the insurance, the fee would be in exchange for the promise of the asset guarantee.
Lloyds has almost tripled in London trading to 89.25p since it announced in March it would cede control to the government in return for state guarantees. To pay for the insurance, the firm would hand additional shares to the Treasury, boosting the state's stake to 62 percent.
Lloyds declined 3.4 percent to 88.5p in early trade in London yesterday, valuing the company at £24bn. By the afternoon the lender had recouped some of its losses, trading down 1.55 percent at 90.19p.
Lloyds is seeking to cut the government's holding because the EU may force it to sell assets or branches to comply with state-aid rules. That would potentially unravel chief executive Eric Daniels' acquisition of HBOS. - Bloomberg
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