Lloyds to stage £13.5bn rights issue

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The Independent Online

Lloyds Banking Group is to stage the UK's biggest-ever rights issue in its attempt to avoid the Government's asset protection scheme (APS).



The share offer, worth £13.5 billion, forms part of a £21 billion fundraising plan unveiled by the banking group today.

With Lloyds hopeful of raising sufficient capital through the market, the move will prevent the Government's stake from rising above its current level of 43 per cent.

However, it will still have to pay the Government a fee of £2.5 billion in return for the protection already provided by the taxpayer since the announcement of the asset protection scheme earlier this year.

It will also have to sell off parts of its business following long-running negotiations with Brussels over remedies for receiving state aid.

This will mean the creation and subsequent disposal of a new retail banking business with at least 600 branches, a 4.6 per cent share of personal current accounts and 19 per cent of the group's mortgage assets.

Under the plan, Lloyds will dispose of the branches and business of Cheltenham & Gloucester and Lloyds TSB Scotland, as well as additional Lloyds TSB branches in England and Wales. The TSB brand and internet operation Intelligent Finance will also be placed into the business, which will be disposed of within four years.



Lloyds has around 3,000 branches following its rescue of Halifax Bank of Scotland at the height of last year's banking crisis. It has 1,800 outlets within the Lloyds TSB network, 1,100 HBOS outlets, and 164 under the C&G brand.

The bank's involvement in the APS would have seen it pay £15.6 billion to insure £260 billion in toxic loans, with the taxpayer stake rising to 62 per cent.

Since Lloyds signed up to the scheme eight months ago, market conditions have improved sufficiently for it to raise capital and duck out of the scheme.

While the bank still expects to make a loss this year, it said levels of bad debt were down significantly in the second half of this year. It is looking for a stronger trading performance next year and in 2011.

The heavily-discounted rights issue will be accompanied by a debt conversion offer expected to generate £7.5 billion.

The Government will take up its rights as a shareholder in Lloyds to participate in the capital raising, investing £5.7 billion to maintain its stake at 43 per cent.

Lloyds shares opened 2 per cent higher today.

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