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More Crashy Crashy. More Cash Injections. More Rights Issues

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Darling is open to Lloyds cash call

Lucy Farndon, Daily Mail

4 September 2009, 9:02am

The government is open to the prospect of injecting billions of pounds in extra taxpayer cash into Lloyds Banking Group if regulators give the bank the green light for a rights issue.

Having been opposed to any attempt by Lloyds to wriggle out of its commitment to the Asset Protection Scheme for toxic loans, Chancellor Alistair Darling is softening his stance, sources say.

It now thinks it could make sense for the bank to embark on a rights issue and reduce its participation in the APS.

A source close to the government pointed out: 'If this leads to a more stable bank, it could be in the taxpayer's interests.'

A strong improvement in stock market sentiment since the APS was first agreed and an assertion by Lloyds that it is through the worst are the driving forces behind the rethink.

The bank's chief executive, Eric Daniels, made it clear in August that he believed the £13.4bn impairment charge taken during the first half marked the peak of the bad debts.

The government has not decided whether it would be prepared to stump up the estimated £4bn or so in taxpayer funds needed to maintain its shareholding in Lloyds at 43%, but it is not averse to injecting some cash.

It actually believes that if Lloyds can show it can raise fresh funds from investors, this would provide a huge lift to sentiment and could enhance the value of the government's stake.

Lloyds has believed for a couple of months that the APS is too costly and is not wholly necessary.

At first, the bank's plan met with great scepticism from the Financial Services Authority and government officials.

But growing optimism about the economic recovery has forced them to take its proposals more seriously.

The government has already injected £17bn into Lloyds to put it on a sounder financial footing following its merger with Halifaxowner HBOS. In return, it got a 43% stake in the bank.

The original plan had been for the bank to put £260bn of its loans into the APS insurance scheme.

It would have to pay a £15.6bn fee, which would be funded by the government stake in the bank rising to around 62%. Lloyds would then be liable for the first £25bn of losses plus 10pc of future losses. But under the proposals currently being considered by the FSA, Lloyds says it wants to embark on a multi-billion-pound rights issue - potentially for £10bn - and use this cash to bolster its capital cushion.

It would then only put a small amount of loans into the APS, hence reducing the fee.

The regulator has yet to sign off the plan and is studying it closely.

There are still a lot of uncertainties because the European Commission is deciding whether the state aid given to Lloyds is allowed.

The size of any rights issue will depend on whether Lloyds disposes of assets such as Clerical Medical and Scottish Widows, which are valued at as much as £4bn each and could bring in billions for the bank.

Shares in Lloyds rose 0.29p to 99.7p yesterday, having quadrupled since hitting lows in March this year. Analysts at Credit Suisse have calculated that if Lloyds reduces its participation in the APS by 50%, it could cut the fee by 35% to £10bn.

The fee could be covered by issuing B shares to the government, with a separate rights issue of £6bn to cover the assets that would no longer be covered by the APS. This would reduce Lloyd's dependence on the government.

Lloyds Banking Group declined to comment.

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HBOS was a bankrupt bank due to the collapse of its value of its loan book/ US investments and regarding the credit crises and the possible failure of global banking the worlds governments was in agreement to DO WHATEVER IT TAKES this statement means create INFLATION to raise the value of the global banks to inflate them SOLVENT the unpresidented actions have worked consider uk house prices up from about 147k to 160k in about half a year thats a near 20% yoy house price inflation and that should make the bank solvent

The new Directors of HBOS now LLOYDS are smarter and I assume they can work this out so why waste money on this insurance?

Mr Darling probably is also aware of this so it would be in the tax payers interest to receive this £16bn payment it would be a nice earner but lets face it the tax payers wont say thankyou but the bank possibly will with a sleeping Director deals or seats at dinner 10k each who knows etc

If you are a shareholder in the bank hope the bank reduces this insurance bill and get ready for some write ups then get out before round two thats my views

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