Lloyds deal hits banking shares

Mar 10 2009 by Iain Laing, The Journal

BANK shares dropped yesterday as shareholders gave the thumbs down to the rescue package forged between Lloyds Banking Group and the Government.

Shares dropped by as much as 15% after stock markets opened for the first time since details of the multi-billion pound bailout were unveiled over the weekend, its price recovered slightly to close down around 7% on the day.

Other banks were also in the red as the spotlight remained firmly on the embattled sector. HSBC dived 10% as it continued to suffer in the fall-out from last week’s £12.5bn rights issue, while Barclays shares were also hit as reports suggested the group was next in line to take part in the Government’s Asset Protection Scheme.

The plan to insure £260bn of “toxic” assets held by Lloyds will help bolster the bank’s balance sheet, but investors reacted badly to news that their shareholdings will be significantly diluted.

Lloyds bosses are now facing calls to quit as shareholder fury mounts over the deal that will see the Government’s stake upped from 43% to a controlling interest of at least 65%. It will also cost Lloyds a premium of nearly £16bn to take part in the scheme.