Lloyds gets boost as investors splash out

Published on Monday 8 June 2009 10:19

THE government's stake in the Lloyds Banking Group is set to remain at 43 per cent after the company's £4 billion fundraising won backing from investors.

The bank confirmed today that 87 per cent of the 4bn of heavily-discounted stock that it offered to shareholders has been snapped up.

It is expected that the remaining 13 per cent of discounted shares will be bought on the open market during the course of today.

Lloyds also confirmed that it will use the proceeds of the sale to replace the government's preference shares with ordinary shares.

The open offer was underwritten by the government, meaning that if the shares had not been bought by investors, the government would have purchased them instead.

That would have meant that the taxpayer's stake in Lloyds could have risen to 65 per cent. However, if the remaining 13 per cent are successfully sold today, the stake remains 43.5 per cent.

Even if they are not, the stake is not likely to rise above around 47 per cent.

Paying back the preference shares will also remove a major burden for Lloyds, which has to pay 480 million in dividend payments on them every year.

Lloyds will become the first lender in Europe to return bailout money to the taxpayer. The repayment comes just eight months after the Treasury had to bail out Lloyds, and is far earlier than many had expected.

Today's announcement was welcomed by City Minister Lord Myners. He said: "I think this is very real progress.

"To imagine, three months ago, that we could have raised primary equity for a major UK bank experiencing the sort of bad debts that Lloyds was announcing is extremely difficult.

"I think we have now moved into a new territory in which institutional investors are saying 'We now have confidence in UK banks, their capital is strong and they are clearly again lending and supporting the UK economy'. So it's good news.

"I think there is still a great deal to be done. The world economy is still in a very nervous condition, but there are some signs in areas regarded as leading indicators that the underlying economy is moving to a position where improvement can be envisaged."

Lloyds is still expected to record losses this year, after Edinburgh-based HBOS contributed 9.6bn of losses last year.