British govt may get 77 pc Lloyds stake in asset deal

Britain will get a stake of up to 77 per cent in Lloyds Banking Group after agreeing a deal to cap its losses at 260 billion pounds...

Written by Reuters | London | Published:March 8, 2009 11:57 pm

Britain will get a stake of up to 77 per cent in Lloyds Banking Group after agreeing a deal to cap its losses at 260 billion pounds ($370 billion) of risky assets,the struggling bank said on Saturday. Lloyds will pay a 15.6 billion pound fee to participate in the deal,and will take the “first loss” of up to 25 billion pounds on the assets. Thereafter,the government will assume 90 per cent of any losses on the value of the assets.

The deal will see the government’s stake in Lloyds rise to 65 per cent from 43 per cent if shareholders do not take up an offer to buy 4 billion pounds of shares. The government’s stake could rise to 77 per cent if ‘B’ shares are converted,but its voting stake will be capped at 75 per cent.

Lloyds is following Royal Bank of Scotland in putting billions of pounds of assets into the scheme in return for handing the government a bigger stake,as policymakers give unprecedented support to the banks to try to get lending flowing again.

The plan will limit the losses banks could suffer if the economy continues to deteriorate and loans sour.

It will slash the risk on assets Lloyds holds and boost its core tier 1 ratio to 14.5 per cent from 6.4 per cent. Eric Daniels,Lloyds chief executive,said the deal “substantially reduces” the bank’s risk profile.

“Our significantly enhanced capital position will ensure that the group can weather the severest of economic downturns and emerge strongly when the economy recovers,” he said in a statement.

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