Lloyds chiefs fight for their lives over £260bn bailout

Small shareholders consider legal action over dilution by Government deal
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The Independent Online

Eric Daniels, Lloyds Banking Group's chief executive, will this morning launch a campaign to convince angry shareholders that he has secured a good deal from the Government to insure £260bn of assets against future losses.

Meanwhile private investors are holding a meeting of their own to discuss the possibility of a legal challenge to a scheme they claim puts the interests of the economy over that of the shareholders.

Boosting support from institutional investors could make or break Mr Daniels and his chairman, Sir Victor Blank, as criticism of their ill-fated takeover of Halifax Bank of Scotland (HBOS) mounts. In an early-morning call with City analysts today, Mr Daniels and his finance director, Tim Tookey, will argue that Lloyds' deal with the Treasury, hammered out on Friday night, is on better terms than the one agreed a week earlier by RBS. Sir Victor will not be on the call.

Mr Daniels' plea comes as it was reported that Lloyds Banking Group staff are poised for about £80m in bonuses. The figure is lower than the £120m Lloyds bosses were thought to be seeking, but will still provoke controversy over rewards for failure. According to The Daily Telegraph, some 40,000 junior staff are to get about £1,000 this year, making up half the payout.

Lloyds is paying £15.6bn in non-voting B shares to insure £260bn of loans and investments in the Treasury's Asset Protection Scheme (APS), with the bank taking the first £25bn of losses and the Government picking up 90 per cent of any more.

RBS is parking £325bn of assets in the APS, paying £6.5bn in B shares and taking a smaller £19.5bn first loss. Lloyds will argue that it has been able to put its worst loans into the scheme, releasing £50bn more risk-weighted assets than RBS and paying less to do so.

But 83 per cent of the risky assets will be from HBOS, fuelling investor anger about the Government-brokered takeover in January. Under the APS's terms, the Government's voting stake in Lloyds could go from 43 per cent to 75 per cent, massively diluting shareholders.

Ian Gordon, an analyst at Exane BNP Paribas, said: "A week ago, Eric Daniels stated that the HBOS deal would still be a good one for shareholders, but instead he has deemed it necessary to do a deal only compatible with HBOS generating losses of such enormity that it could not have been a good deal ... His position must be highly vulnerable."

Smaller shareholders are calling for the resignation of Sir Victor and Mr Daniels, and maintain there should be a vote on whether to proceed with the APS deal. Roger Lawson, chairman of the UK Shareholders' Association, said: "The HBOS takeover was clearly a mistake and we would like to see the whole board resign. Now the directors are effectively passing control from shareholders to the Government and there should be a vote."

A Lloyds spokesman said: "We have secured a good deal, with cost-effective protection on high-risk loans."

Shaken and stirred: Six months that have left Lloyds reeling

*September 2008

HBOS shares freefall after Lehman collapses. Lloyds TSB proposes £12bn takeover after Prime Minister and Victor Blank meet at a cocktail party

*October 2008

UK Government pledges to underwrite a £17bn joint rights issue

*November 2008

Lloyds shareholders approve takeover *December 2008

HBOS shareholders also back deal as bosses warn bad debts of up to £8bn

*January 2009

Wary investors leave Government as 43 per cent owner. Merger finalised

*February 2009

Lloyds shares plummet after warnings of a £10bn loss at HBOS. Government says no plans to nationalise

*March 2009

Government takes potential 77 per cent stake in Lloyds in return for insurance on £260bn of loans

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