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Business News

Lloyds reveals cash call details

Lloyds Banking Group today set out details of its £13.5bn UK record cash call to the bank's army of 2.8 million private shareholders.

The group, which is 43 per cent owned by the taxpayer, is offering shareholders stock at a steep 38.6 per cent discount under plans to avoid taking part in the Government's toxic asset insurance scheme.

The average Lloyds private shareholder will be asked to stump up £336.67 to take part in the fundraising and maintain their stake.

Today's pricing details - which come ahead of an investor vote in Birmingham on Thursday to approve the fundraising - reveal that shareholders are being given the chance to buy 1.34 new shares for each existing share at 37p.

This is a hefty discount of more than half of the closing price of Lloyds shares last night and a 38.6 per cent discount on the so-called theoretical "ex-rights" price.

Lloyds is going cap in hand to its shareholder base - including the taxpayer, which is now its biggest single investor - to side-step the Government's asset protection scheme (APS) by raising capital instead.

Under the original terms, the bank would have had to pay £15.6bn to insure £260bn in loans under the APS - raising the taxpayer stake to 62 per cent and handing the Government majority ownership.

Royal Bank of Scotland, which is taking part in the APS, will end up being 83 per cent owned by the Government after it puts risky loans up for insurance.

But Lloyds is having to raise £22.5bn to avoid the scheme and will also fork out a £2.5bn fee to the Government in return for the protection already provided by the taxpayer since the announcement of the APS earlier this year.

Yesterday it completed the other part of its fundraising, securing more than £8.8bn from a debt conversion offer.

The bond exchange was substantially oversubscribed, which is thought to bode well for investor appetite for the £13.5bn rights issue outlined today.

Lloyds will be asking its shareholders to vote on Thursday on the planned move at a general meeting.

The Government has already said it will back the deal, which will cost the taxpayer another £5.7bn after underwriting fees.

However, Lloyds has the biggest private shareholder base in the country and will also be asking individual investors for their backing.

A typical Lloyds private shareholder has around 740 shares and will be given the right to buy 991 shares at 37p a share.

They have the choice not to take part, but will see their shareholding diluted as a result.

Lloyds said the 36.5 billion new shares being offered will represent 57.3 per cent of the bank's enlarged share capital following the rights issue.

The part-nationalised bank has been struggling amid retail bad debts, many of which it took on board following its rescue takeover of Halifax Bank of Scotland last autumn.

It said bad debts reached £3.3bn for the first nine months of the year, while its wholesale banking arm has racked up £12.9bn in impairment charges so far.

While Lloyds still expects to make a loss this year, it calmed nerves earlier this month by revealing that levels of bad debt were down significantly in the second half with hopes for trading to improve next year and in 2011.