Lloyds Banking: Sell off and rights issue

Tuesday, 03 November 2009 10:08

Lloyds Banking today announced a rights issue and a major sell-off of assets.

The rights issue - as a means of escaping the government's asset protection scheme - has been rumoured about for a number of weeks.

The final parts came together today as a sell-off of assets to meet European state aid rules and Alistair Darling's demands for greater competition came in.

On the high street, a major sell-off will be taking place with many customers set to find they are no longer Lloyds Banking customers as they are sold off along with branches.

Over the next four years 600 branches, a 4.6 per cent share of the current account market and 19 per cent of mortgage assets will be sold off.

Businesses ear-marked for sale include:

• The TSB brand
  
• Cheltenham & Gloucester branches, savings accounts and branch-based mortgages
  
• Lloyds TSB Scotland branches and customers
  
• A number of Lloyds TSB branches in England and Wales with customers
  
• Intelligent Finance

The bank has also pledged not to make acquisitions for four years.

Furthermore no dividends will be paid on ordinary shares until 2012.

Lloyds Banking is also stepping away from the government asset protection scheme (GAPS).

Under the initial terms the toxic insurance would have cost the bank £15.6 billion, to be paid in shares.

Lloyds is paying £2.5 billion for the cover it has already taken, and following stress tests it now believes a rights issue of £13.5 billion will provide enough capital.

A statement from the Lloyds Banking board read: "Since commencing the negotiation of the terms of GAPS, the UK economy has begun to stabilise and is now expected to return to growth in 2010.

"Accordingly, the board believes that the likelihood of the UK economy deteriorating to the levels implied by the FSA Stress Test, the assumptions behind which remain unchanged, is now materially lower than was the case in March 2009."

However, the bank will still receive more funds from government.

For the state to maintain its 43.4 per cent stake, the Treasury will sign up to the rights issue spending £5.7 billion.

A further £7.5 billion will be raised by swapping existing debt for contingent capital.

The lender also issued a market statement revealing revenues are up, but a loss for 2009 as a whole is expected.

Impairment losses on bad debts over the first nine months of the year stood at d £18.6 billion - however, the lender predicts the peak of write-offs has passed, but they will continue into 2010.

From the high street business, write-off stood at £3.3 billion, with £800 million stemming from mortgages and £2.5 billion from personal loans and credit cards.

The statement adds: "We currently expect residential house prices to be flat in 2009 and 2010."

Eric Daniels, Lloyds Banking chief executive, said: "The group has delivered a robust business performance over the last few months, in what remained a challenging, albeit stabilising, economic environment.

"On impairments, the slowdown in the run-rate in the third quarter provides additional comfort that the Group's overall impairment charge has peaked, and that there will be a significant reduction in impairments in the second half of 2009. We have also significantly improved our short-term liquidity position."

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