Lloyds looking to scale back its reliance on state protection scheme

Published on Friday 18 September 2009 21:34

LLOYDS Banking Group yesterday revealed it is in talks over scaling back or cancelling its participation in a state-backed scheme to insure it against credit losses.

Lloyds is discussing a reduction in the number of toxic assets it might place in the so-called asset protection scheme (APS), encouraged by "improving economic conditions," the part- nationalised lender said.

The bank said it was also in talks with the government and the financial regulator over "possible alternatives" to entering the scheme, without providing further detail. "All possibilities remain open," Lloyds said.

Analysts estimate the bank would have to raise up to 20 billion, representing one of the biggest capital-raisings on record, if it were to quit the APS. Most consider this possibility "unfeasible".

On Thursday. the Financial Services Authority set tougher-than-expected capital conditions on Lloyds' potential exit from the scheme, making an outright departure less likely.

The bank, 43 per cent owned by the state, is anxious to scale back its reliance on the state, amid concerns that European regulators may force it to sell some assets in response to competition concerns.

Elsewhere, the City minister yesterday called for a "moral reform" of the banking sector after losing the trust of the public in the wake of the financial crisis.

Lord Myners also launched a fierce attack on bumper pay packages, and warned "change is coming". He said the huge salaries and bonuses on offer to bankers reflected an "ironic" deficiency in labour markets in the heart of the City.

"Derivative traders are not footballers with unique talents, and should not be paid as though they are," he said.