Lloyds wins support for $16 billion withdrawal from insurance scheme

image According to the Guardian, Lloyds Banking Group has won backing from its investors to raise 10 billion pounds ($16.3 billion) to reduce its dependence on the taxpayer.

The bank, 43 percent-owned by the UK government after taking over HBOS last year, had won support from "important City (financial district) shareholders", who said they are prepared to back CEO Eric Daniels if he decides on a partial withdrawal from the government’s insurance scheme, the UK newspaper said.

The group has 260 billion pounds of toxic loans, and insuring them under the government’s Asset Protection Scheme (APS) would cost 15 billion pounds. The insurance fee could only be paid if Lloyds allowed the government to buy new shares in the company, which would take the taxpayer’s stake in the bank to above 60 %.

However, Eric Daniels is working on an alternative plan that would involve Lloyds insuring against bad loans worth only 130 billion pounds, the paper said. Fees would come down sharply by cutting Lloyds’ exposure to the APS, and the money could be raised via a discounted rights issue.

If Lloyds won support for a share issue, it would be able to use some of the funds to bolster its capital position, as well as pay the fee. Lloyds is conducting a general review of its operations to reduce the state aid it requires after the European Commission indicated concern about the scale of state assistance the bank has already received, and warned it may be forced to sell assets.

Most of the billions of pounds of write-downs that Lloyds has disclosed in the last nine months are linked to toxic loans granted by HBOS before it was taken over by Lloyds last autumn. Recently, Lloyds reported a 4 billion pound pre-tax loss, with HBOS accounting for about 80 % of the group’s 14 billion pound bad loan provisions.

Comments are closed.