Treasury takes 65 per cent Lloyds stake

Published on Saturday 7 March 2009 12:09

ANOTHER multi-billion pound injection of public cash into Lloyds Banking Group was announced today.

The Government is to insure 260 billion of the bank's potentially "toxic" assets, according to the Treasury.

In return the taxpayer will up its ownership of the bank from 43% to 65% – or 77% including non-voting shares.

Lloyds Banking Group has also pledged to lend an additional 28 billion over the next two years as part of the deal.

The Government's fee for limiting Lloyds' losses from 260bn of potentially bad assets totals 15.6 billion.

Alongside taking extra shares and obtaining the commitment to lend to businesses and individuals, the Treasury will also upgrade 4 billion of the non-voting shares it already holds.

Lloyds Banking Group was the FTSE 100 Index's leading riser yesterday amid hopes that a deal was close to limit its potential losses.

The company was forced to ask for further support because of the heavy losses run up by HBOS – which it took over to prevent its collapse.

The news means that the taxpayer has a controlling interest in another bank.

The Government has already struck a similar agreement with Royal Bank of Scotland.

RBS – which last week posted a UK record loss of 24.1 billion – has agreed a similar deal to place 325 billion of riskier assets such as commercial property loans and mortgage-backed securities into the government scheme.

Under the insurance scheme, Lloyds will take the first "hit" of up to 25 billion on toxic assets before the taxpayer steps in.

The new ordinary shares in the bank will be offered to existing private shareholders first, with the Government committing to buy whatever is left.

The Treasury said the lending commitment was for an additional 3 billion in mortgages and 11 billion to businesses over the next 12 months, and a similar amount over the subsequent year – depending on "economic circumstances at that time".

The agreement was struck in principle after days of detailed wrangling between the Treasury and Lloyds bosses, who were said to be unhappy with the company being in majority state control.