Lloyds in headlock with Government over toxic asset insurance scheme

05 March 2009 / by Rachael Stiles
Lloyds Banking Group and the Government are struggling to come to an agreement over the terms of the insurance scheme for the bank's toxic assets, and how much of a stake this will give the taxpayer.

Lloyds is fighting to retain at least 50 per cent control of the bank, and is considering ways in which it can get the Government to insure £250billion of its toxic assets while still keeping the taxpayer's stake at 43 per cent, the Guardian reported.

The recently formed Lloyds Banking Group is floundering under the weight of £10.8billion of losses which it incurred with its take-over of HBOS.

The Government is thought to be looking for a majority stake in the bank in order to gain more control, but Lloyds is resisting, and City sources have suggested that its chief executive, Eric Daniels, is so determined to stave off Government intrusion into the running of the bank that he is threatening to quit.

Negotiations are said to have stalled amid concerns that Lloyds could have to pay the Government up to £12.5billion to insure its assets, at double the two per cent fee that the Treasury charged RBS when it insured £325billion of its assets.

Alex Potter, analyst at Collins Stewart, has calculated that the Government's hold over Lloyds could rise to 75 per cent if the same terms are applied as were used for the RBS deal, the Guardian said, but that this could rise even higher, if a compromise is not reached over what Lloyds should pay for its participation in the scheme.

A spokesperson for Lloyds has said that the talks are progressing and constructive, and it is thought that a decision will be made by the end of the week, but other experts suspect that talks will continue through the weekend.

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