Lloyds sets placing as Blank effect lifts stock

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The Independent Online

Lloyds Banking Group is to push ahead with a £4bn placing, as its shares soared on the first day of trading after its chairman, Sir Victor Blank, announced his decision to quit the group.

The bank, which is 43 per cent-owned by the taxpayer, said the share issue would start tomorrow, after it reached an agreement with the Treasury.

Lloyds shares closed almost 10 per cent up yesterday after the news of Sir Victor's departure and the placing.

The placing and open offer was first announced in March, but only confirmed yesterday. Shareholders can subscribe for 0.6213 new shares for each one held at 38.43p. The stock rose after a new condition could see smaller shareholders profit from the sale.

Any shares remaining from the placing will be put on the market and any profit above the 38.43p price will be shared out among investors.

The Treasury is underwriting the issue, so should the shares not be taken up its stake in the group will rise from 43 per cent to 65 per cent. However, with Lloyds shares now trading at 98p, analysts do not believe this is likely. Sandy Chen, at Panmure Gordon, added: "Existing investors should take up their new shares allocation". Analysts at Charles Stanley believe "significant problems on an operating level" will hit demand.

The placing will be used to swap the £4bn of preference shares held by the Treasury with ordinary shares. This will save the group £480m in annual preference share payments. Details of the offer will be outlined on Wednesday, with a prospectus posted to shareholders shortly after.

Lloyds added that it remained in negotiations with the Treasury to finalise its participation in the Government Asset Protection Scheme. These talks are "expected to be concluded over the next few months".

This comes as Lloyds starts the search for a new chairman. The current incumbent, Sir Victor, announced on Sunday that he would not be standing for re-election when his term expires next year. He said it was "the right time" for a new chairman.

Sir Victor will stay on until a new chairman has been appointed. Lloyds appointed Lord Leitch as deputy chairman to help the succession process.

Mr Chen of Panmure Gordon cautioned that Sir Victor's departure "will not change the fact that Lloyds faces enormous near-term challenges as a result of the HBOS acquisition".

In the longer term, Mr Chen expects "substantial losses" at Lloyds this year and the next, weighed down by its commercial property, HBOS corporate and the self-certification and buy-to-let mortgage books. "Although the £260bn Government APS will help to cap the losses on many of these exposures, it won't affect the underlying macro-driven credit trends," he said.

It is unlikely that Lloyds' chief executive, Eric Daniels, will follow Sir Victor out of the company after the body set up to manage the Government's bank stakes backed him yesterday. A spokesman for UK Financial Investments said there was "no question that Eric is the right man for the job".