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UK government takes controlling stake in Lloyds

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[March 07, 2009]  LONDON (AP) -- The British government has become a majority shareholder in Lloyds Banking Group PLC in exchange for insuring more than 260 billion pounds ($367 billion dollars) in risky assets, the bank said Saturday.

The deal raises the government's interest in the group from 43.5 percent to at least 65 percent. As a condition of the deal, the bank promised to increase lending by 28 billion pounds ($39 billion) over the next two years, the majority to businesses.

Eric Daniels, the group's chief executive, said in a statement that the deal "substantially reduces the risk profile of the group's balance sheet. Our significantly enhanced capital position will ensure that the group can weather the severest of economic downturns and emerge strongly when the economy recovers."

The group turned to the government's asset protection scheme after its January takeover of HBOS, which earlier this month reported a full-year loss of 7.5 billion pounds, compared with a profit of 4.05 billion in the previous year. Lloyds said that of the 260 billion pounds of risky assets, 83 percent comes from HBOS' lending books. The group's Lloyds TSB unit reported an 819 million-pound profit.

The government will collect a 15.6 billion-pound fee from Lloyds in return for the deal, to be paid over seven years. The government's total stake, including all types of shares, could rise as high as 77 percent, though the statement said the Treasury would not be able to exercise more than 75 per cent of the voting rights.

Stephen Timms, the Treasury's chief secretary, told the BBC there was uncertainty over the true value of the assets, but that he believed the deal would help position Lloyds for the future as a strong financial institution.

He also said the ultimate cost to the taxpayer was unclear.

"What we have seen elsewhere where similar arrangements have been made is that some fraction of the total value of the assets held is ultimately a cost to the taxpayers, but it will be some years before the total cost becomes clear," Timms said.

[Associated Press; By JENNIFER QUINN]

Copyright 2009 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.





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