Lloyds to pay £2.5bn to avoid Government scheme

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Lloyds Banking Group will pay the Government £2.5bn to avoid a taxpayer-backed insurance scheme for toxic debts, it emerged today.

The bank - which is 43 per cent owned by the taxpayer - is paying the fee for the implicit guarantee given to £260bn in bad loans, which Lloyds said it would put into the Asset Protection Scheme in March.

Chancellor Alistair Darling will announce the fee next week if he gives final approval to the bank's £21bn fundraising plans, Sky News said.

The Treasury and Lloyds both declined to comment on the report, but it is understood that the £2.5bn dwarfs the £150m first offered by the bank.

Under the current terms of its entry, it will pay £15.6bn in new shares as a fee for the APS, taking the Government's stake to 62 per cent.

But if the Chancellor agrees the fundraising plans, Lloyds would keep the taxpayer stake pegged at 43 per cent.

According to today's Financial Times, Lloyds is planning the world's biggest right issue - £13bn - which would involve the Government pumping in another £6bn to maintain its holding.

The bank is also said be planning to issue £7.5bn in bonds which can be converted into shares as well as selling parts of the Cheltenham & Gloucester chain, parts of the Lloyds business in Scotland and the online Intelligent Finance mortgage and savings arm.

The group yesterday sought to reassure over its restructuring to address European Commission concerns amid fears it may have to sell most of the HBOS business it bought last year.

It said it was confident from talks so far with Europe that any overhaul would "not have a material impact on the group".

Lloyds has around 3,000 branches following its rescue of HBOS at the height of last year's financial crisis - 1,800 within the Lloyds TSB network, 1,100 HBOS outlets and 164 under the Cheltenham & Gloucester brand.

It is thought the European Commission may force Lloyds to sell its C&G branches and around 185 Lloyds TSB outlets in Scotland, where it has 500 branches in total.