State-controlled Lloyds in deal with cluster bomb manufacturer

Lloyds TSB has signed up to a multi-million dollar bond deal with the arms manufacturer Lockheed Martin despite growing condemnation of the British banking industry's continued investments in cluster bomb manufacturers.

Lloyds Securities Inc, the US offshoot of the British banking group, was part of a syndicate that helped Lockheed raise $2 billion through bond deals. A copy of the bond brochure obtained by The Independent shows Lloyds agreed to underwrite $10m (£6.4m) worth of bonds, which will prove controversial when UK tax payers still own 41 per cent of the bank.

The deal comes at a time of growing criticism over the Government's failure to plug a legal loophole that allows companies to invest in cluster bomb manufacturers despite a ban on them.

Britain is a signatory to the Cluster Munitions Convention, a global treaty forbidding the use, production, stockpiling and transfer of cluster bombs which has been signed by more than 100 countries.

Yet there is nothing to stop British companies investing in cluster bomb manufacturers as long as they don't directly invest in the bombs themselves.

This summer, The Independent revealed how banks including Barclays, RBS and Lloyds had invested millions in known cluster bomb manufacturers. RBS promptly severed ties with defence companies known to be involved in the industry, including Alliant Techsystems and Lockheed Martin. HSBC had already blacklisted cluster bomb manufacturers. Barclays is in the process of wrapping up any outstanding contracts with companies that have been highlighted by arms campaigners as cluster bomb makers.

At the same time, insurance company Aviva confirmed that Lockheed was one of 12 companies it had blacklisted for its continued involvement in cluster bomb manufacturing.

But Lloyds TSB, which was bailed out with an injection of £20bn of state funds, has pressed ahead with renewed investment in Lockheed. The involvement in last month's bond deal is just one of a long line of investments in the American arms manufacturer. In November 2009, Lloyds contributed $62.5m as part of a 12-bank syndicate when Lockheed issued bonds for a total of $1.5bn.

A Lloyds spokesman said: "Lloyds does not knowingly provide bank finance to support the manufacture of any weaponry that breaches UK, US, EU legislation or UN directives, or weapons which have been outlawed by international treaty."

Oliver Sprague, Amnesty International's UK arms programme director, said: "We would strongly urge Lloyds to... remove itself from all investments and funding agreements which are related to cluster-munition producing companies."