Lloyds Banking looks to avoid government toxic insurance

Friday, 18 September 2009 10:13

Lloyds Banking is looking towards an alternative to signing up to the government's Asset Protection Scheme (APS).

The lender first signed up to the insurance scheme in March - where lenders take the initial hit on losses on insured assets with the taxpayer covering the rest - but has since dragged its heals.

Full entry into the scheme could lead to Lloyds Banking to hand over a stake of up to 65 per cent to the government and its board are keen to keep the state's stake under 50 per cent.

Around £260 million of assets - which stem from HBOS - are thought to be covered.

Lloyds Banking has been looking at rights issues to raise the necessary funds.

However, the Financial Times reports, following Financial Services Authority (FSA) stress tests, the lender would not be able to raise sufficient funds from shareholders and the markets.

The paper quotes sources stating Lloyds Banking could use a slimmed down version of the APS.

Lloyds Banking has now announced it is looking at alternatives while maintain discussions with the Treasury.

A spokesperson said: "Lloyds is also considering possible alternatives to entering into APS.

"All possibilities remain open."

She added "in light of improving economic conditions" and a review of Lloyds' loan portfolios and their expected performance, Lloyds and HM Treasury are discussing possible changes to the commercial terms of the APS.

Changes include cutting the amount of assets covered and hooking into a completely new scheme.

A spokesperson for the Treasury said the discussions were "ongoing" and the government's priority was for "financial stability and value for money for the taxpayer".

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