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Lloyds Rights Issue

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Lloyds eyes cash call to cut state reliance

Ian Lyall, Daily Mail

9 August 2009, 8:55pm

Investors in Lloyds Banking Group may be asked to dig deep to help the embattled lender reduce its reliance on the state.

For it emerged yesterday that boss Eric Daniels is considering the merits of a giant rights issue to avoid the £16bn cost of placing tens of billions of pounds of toxic debt into the government-funded asset protection scheme.

The black horse bank, which is 43%-owned by the taxpayer, is thought to be under pressure from City investors, some of them hedge funds, to side- step the controversial and expensive insurance scheme.

The group agreed to put £260bn worth of loans into the APS in March but could significantly reduce its participation if the government agrees.

As well as the cost of the APS, Lloyds is also said to be concerned at the increase in the government stake to more than 60% which would come with the move.

Under the APS, Lloyds would be responsible for a first loss of up to £25bn on the insured assets as well as 10% of further writedowns.

Last week Lloyds made a whole host of writedowns on its toxic loan book, and now apparently the sums don't add up. One analyst estimates the group could pour £16bn into the APS and yet would only be allowed to claim £10bn back.

However, the experts reckon it would cost between £10bn and £15bn to shore up its finances and avoid the APS completely.

A Lloyds spokesman wouldn't comment directly on whether the group was planning a second rights issue this year - it launched a £4bn cash call in May to redeem government-owned preference shares.

But he added: 'We are working with the Treasury to finalise detailed terms of our intended participation in the asset protection scheme. We expect to conclude terms that are in the best interest of our shareholders.'

The shares closed on Friday at 101.98p, down 2.7p - around the level they started the year at. At its nadir the stock was changing hands at around 30p.

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