Lloyds to resist rights issue despite effect of writedowns

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The Independent Online

Lloyds TSB is set to resist the trend for banks to boost capital when it unveils bigger credit crunch writedowns at its interim trading statement next week.

Rumours have been swirling before Lloyds's annual general meeting next Thursday that it could be the next bank to announce a cash call on shareholders.

But Britain's biggest bank for personal current accounts is expected to say on Tuesday that its strong capital ratios and access to funding set it apart from rivals which have announced big rights issues. HBOS announced a £4bn rights issue on Tuesday, a week after Royal Bank of Scotland unveiled its record £12bn share offer.

Lloyds took a £280m write-down to its income statement on treasury and trading assets in the second half of 2007 and a £413m negative adjustment through reserves. HBOS's first-quarter writedowns were about four times the level for the second half but, without the pressure of a rights issue, Lloyds is expected to take lighter markdowns than its rival.

At the end of 2007, Lloyds's tier one capital ratio was 9.5 per cent compared with 7.7 per cent for HBOS. The core equity tier one ratio was 7.4 per cent against HBOS's 5.7 per cent. Both HBOS and RBS are targeting equity tier one ratios of 6 per cent or more to boost investor confidence and guard against unexpected economic shocks.

A Lloyds spokeswoman said: "We continue to have a strong capital and funding position." The bank declined to comment further.

The Governor of the Bank of England, Mervyn King, has repeatedly called on banks to recapitalise to boost confidence in the financial system and support the economy. The Bank of England is concerned about a vicious spiral if banks rein in lending, putting pressure on households and businesses with knock-on effects for economic growth.

However, Lloyds said in February that it was open for business and taking market share from its rivals.

Barclays, whose equity tier one ratio was just 5.1 per cent at the end of 2007, said last week it was in no rush to raise capital but was keeping options open. Bradford & Bingley has considered a rights issue and said last week that its capital position remained under review.

Lloyds shares closed down 0.4 per cent at 430.75p yesterday, the third straight day the stock had fallen.