While a number of other financial institutions have recently issued cash calls to shore up their own capital reserves – including HBOS, Bradford & Bingley and Royal Bank of Scotland – it appears Lloyds has managed to escape the worst of the credit crisis, and may even be able to take advantage of turbulence in the financial markets.

Estimates suggest Dresdner Bank, currently a subsidiary of insurance group Allianz, is worth approximately £6 billion and although Lloyds, the UK’s fourth largest bank, has a strong balance sheet, it may need to consider various financing options. One possible course of action would be a rights issue, although there are several alternatives, for example an exchange for its Scottish Widows life assurance business.

Although the bank is said to have been in talks with Dresdner, no firm deal has yet been confirmed, and there is no pressure for Lloyds to buy. However, it is thought that shareholders are likely to recognise the potential benefits of the acquisition and may be persuaded to raise the necessary funds.

There have been reports that a German buyer is being sought for Dresdner, which could put Lloyds at a disadvantage, along with Spanish bank Banco Santander, another potential acquisition candidate. Dresdner has already held merger talks with Frankfurt-based Commerzbank.

Meanwhile, Lloyds has been linked with other possible takeover bids, including two Germany-based companies – Postbank and the German arm of US company Citigroup.

Its latest trading statement showed that the bank remains in a stable position, despite well-documented wobbles from other institutions. Write-downs were just £387 million for the first quarter of 2008 and, when the data was released, chief executive Eric Daniels commended the firm’s “strong liquidity and funding capability”.

© Fair Investment Company Ltd