Lloyds Banking 'to pay £2.5bn' to escape toxic insurance

Friday, 30 October 2009 04:18

Alistair Darling is set to announce Lloyds Banking can walk away from the government's toxic insurance scheme in exchange for a fee of £2.5 billion.

An announcement is expected next week, which would allow the lender to start a rights issue and debt for equity swap with bond holders to raise £25 billion.

Lloyds Banking agreed in March to sign up to the asset protection scheme (APS), and the fee would cover the assumed cover it has had since then.

Yesterday the lender announced it was in advanced talks to step away from the APS and with the European Commission on the sale of any assets state help may demand.

Lloyds Banking and the Treasury are not commenting on the latest reports.

It is reported Lloyds Banking is aiming at raising as much as £15 billion in a rights issue and some £10 billion of debt held by bondholders could be converted into equity.

Some parts of Lloyds Banking could be also sold off.

Any deal would involve a high degree of creative accounting.

For the government to maintain its 43 per cent stake in Lloyds Banking it could have to payout a further £6 billion, while taking £2.5 billion on the insurance fee.

If Lloyds Banking goes for the APS, it will have to pay over £15 billion to insure £260 billion of assets, so increasing the government's stake over to over 60 per cent.

Much of these assets stem from the take-over of HBOS - which was pushed by the government.

The lender is believed to both want to avoid allow the state to hold over 50 per cent and the forced sell-off of assets that would result to meet European competition rules.

Yesterday, the bank stated it was "confident that the final terms of its restructuring plan, including any required divestments of assets, will not have a material impact on the group".

• Tags:
• investment advice
,
• news