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Lloyds shares rise as Government could own 70% stake

06 March 2009 / by Rebecca Sargent
Shares in Lloyds Banking Group were up by almost five per cent this morning amid rumours of a £250billion Treasury deal, which could see the taxpayer's stake in the group soar to 70 per cent.

Lloyds' share price rose from its open of 40.30p to 42.10p at nine o'clock this morning, amid speculation over its participation in the Government's Asset Protection Scheme.

The group's participation in the scheme, which will see some of its most toxic assets insured against future losses, was originally expected alongside its results announcement last Friday.

However, as yet an agreement has not been reached, despite being locked in talks with the Treasury for a week.

Lloyds shares rose in value this morning following multiple reports that the bank will soon announce its participation in the scheme to the tune of £250billion.

According to reports in The Financial Times, the Treasury agreement will be announced today, and is expected to reveal just how treacherous the takeover of HBOS was for Lloyds TSB.

According to the FT, Lloyds Banking Group's vulnerability will be exposed by the Treasury agreement which could see the taxpayer's stake in the bank rise from 43 per cent to 70 per cent.

So far, Royal Bank of Scotland (RBS) has revealed that it will be participating in the Asset Protection Scheme. The troubled bank has asked the Government to insure £325billion in its toxic assets.

The Asset Protection Scheme is part of a number of initiatives that the Government has introduced in its attempt to steer the UK through the recession. Its latest measure, quantitative easing – which is akin to printing money – was announced yesterday.

The success of the measures remains to be seen, but some experts see the Asset Protection Scheme as ineffective. Liberal Democrat shadow chancellor Vince Cable said of RBS's participation:

"This proposal is a disgrace and a total betrayal of the British taxpayer. Ministers have completely lost the plot.

"The Government is underwriting the banks' worst assets, nationalising the losses and privatising the profits. This elaborate scheme is concealing a very large and long-term taxpayer subsidy," Mr Cable added.

© Fair Investment Company Ltd