Lloyds set to make £11bn funding call

Published on Sunday 25 October 2009 20:17

LLOYDS Banking Group is expected to announce its anticipated £11 billion rights issue this week in a bid to evade the government's Asset Protection Scheme (APS).

Analysts believe the cash call announcement may come as early as first thing today or tomorrow, but some sources say it may be the end of this week before the government gives approval to the fund-raising, given the complication of the APS.

It is believed that Lloyds, brought low by its acquisition of HBOS earlier this year, also plans to raise another 11bn or so by converting some of its debts into shares and issuing new debt that could convert into shares.

The taxpayer currently owns 43 per cent of Lloyds and if the government takes up its entitlement in a rights issue it would cost the taxpayer another 5bn.

By contrast, if Lloyds joined the APS it would issue new shares to the government, boosting the taxpayer stake in the bank to 62 per cent – widely seen as anathema to the bank's chief executive Eric Daniels. Meanwhile, Royal Bank of Scotland, 70 per cent owned by the taxpayer, is believed to be attempting to withdraw 50bn of assets from the government's insurance plan – bringing the amount of potential toxic assets covered down from 325bn to about 275bn.

The European Commission is also expected to rule shortly on what assets it wants RBS and Lloyds to give up as part of the billions they have received in state aid to keep afloat. Both banks have announced various asset sales recently in a bid to limit the most Draconian of EC- induced business scale-down scenarios.