Lloyds to pay Government £2.5bn

Oct 31 2009 by Iain Laing, The Journal

LLOYDS Banking Group will pay the Government £2.5bn to avoid a taxpayer-backed insurance scheme for toxic debts.

The bank – which is 43% owned by the taxpayer – is paying the fee for the implicit guarantee given to £260bn in bad loans, which Lloyds said it would put into the Asset Protection Scheme in March.

Chancellor Alistair Darling will announce the fee next week if he gives final approval to the bank’s £21bn fundraising plans.

It is understood that the £2.5bn dwarfs the £150m first offered by the bank. Under the current terms of its entry, it will pay £15.6bn in new shares as a fee for the APS, taking the Government’s stake to 62%.

But if the Chancellor agrees the fundraising plans, Lloyds would keep the taxpayer stake pegged at 43%.

According to the Financial Times, Lloyds is planning the world’s biggest rights issue – £13bn – which would involve the Government pumping in another £6bn to maintain its holding.

The bank is also said be planning to issue £7.5bn in bonds which can be converted into shares as well as selling parts of the Cheltenham & Gloucester chain, parts of the Lloyds business in Scotland and the online Intelligent Finance mortgage and savings arm.

The group yesterday sought to reassure over its restructuring to address European Commission concerns amid fears it may have to sell most of the HBOS business it bought last year.

It said it was confident from talks so far with Europe that any overhaul would “not have a material impact on the group”.

Lloyds has around 3,000 branches – 1,800 within the Lloyds TSB network, 1,100 HBOS outlets and 164 under the Cheltenham & Gloucester brand.