Rights issue would be one of biggest in history
Lloyds gauging appetite for R153 billion bln cash call
Talks under way with key shareholders
October 30, 2009
Britain's Lloyds Banking Group was on Friday talking with key shareholders to gauge investor appetite for a potential 12 billion pound (R153 billion) cash call, one of the biggest on record.
The part-nationalised lender approached its shareholders on Thursday, investor sources said, and hopes to complete the bumper rights issue before the Christmas holiday.
One top ten Lloyds investor said the participation and scrutiny of the British government, which owns a 43 percent stake in Lloyds, made it more likely the fundraising would succeed.
"We have to assume they would have passed it by the FSA (regulator), by the Treasury and got it approved by the Bank of England, and the government is putting its hand in its pocket, so there is a high degree of testing by interested parties who wouldn't want egg on their face," the investor said, speaking on condition of anonymity.
The share sale would have to be priced at a discount of at least 40 percent, given the amount of capital being raised and uncertainties over the bank's future prospects, analysts said.
"What I'm hearing is it will be at least 40 percent," said one analyst who asked not to be named.
"It would have to be a big discount for such a huge amount of capital, and given all the uncertainty around it. So I think 40 is a reasonable number, it might be a bit more than that."
Britain's biggest retail lender needs the money to fund its exit from a costly government scheme to insure it against credit losses that the bank hopes will prove unnecessary following an improvement in market conditions since the asset protection scheme was drawn up in March.
In all, the bank is looking to plug a capital gap of more than 20 billion pounds using the rights issue, fresh hybrid capital and a convertible bond. It said on Thursday that talks on exiting the protection scheme were well advanced.
Lloyds shares were up 4 percent at 89.4 pence by 1110 GMT, extending Thursday's gains of around 8 percent after the bank said EU regulators investigating its reliance on state aid would not impose draconian penalties.
Lloyds is close to a deal with the European Commission under which it would sell Lloyds TSB Scotland, its Cheltenham & Gloucester branch network, and internet banking unit Intelligent Finance, two sources familiar with the matter said.
"There's a bit of relief in there. It's a clear story now: The Commission won't require as much in the way of disposals as feared," the analyst said.
The EU-mandated break-up of Dutch bancassurer ING earlier this week stirred fears that it might be forced to dispose of its much bigger Halifax mortgage business, triggering a steep fall in its share price.
The shareholder who spoke to Reuters said that despite the amount of capital being sought by Lloyds there was a case for investing, particularly if one believes the economy is stabilising.
"It has a good franchise, good brand, it is well-placed to benefit from the turnaround," the shareholder said, but cautioned nobody yet knew what the likely extent of losses on bad loans would be.
"If anybody thinks they can guess impairments with any certainty, then they have an insight into the future." - Reuters
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