Share Dealing News Lloyds Shares Bounce Back As Rights Issue Commences

Written by Editorial Team
03 November 2009 / by Rebecca Sargent

Lloyds shares crept back up again this morning following the Treasury’s announcement that the bank will not be forced to participate in its Asset Protection Scheme.

Lloyds Banking Group has managed to escape being further owned by the taxpayer, by launching capital raising initiatives to the value of £21billion. The money raised is to include a £13.5billion rights issue – its second since the financial crisis began.

Meanwhile, the bank intends to raise an additional £7.5billion by swapping existing debt for contingent capital.

But, in addition to the capital raising, it is expected that both Lloyds and troubled Royal Bank of Scotland (RBS) – which has not managed to escape the Asset Protection Scheme – will soon be forced to sell off parts of their businesses in order to increase competition in the markets.

“To promote greater competition in UK banking, and meet EU State Aid rules, the banks will also be required to make divestments of significant parts of their businesses over the next four years,” the Treasury announced this morning.

According to the BBC’s business editor Robert Peston, the forced fragmentation of both Lloyds and RBS that will soon take place is down to the European Commission, in particular its competition commissioner Neelie Kroes.

“It will be fascinating to see if either the Treasury or the Tories give her credit for actions which – they both claim – are consistent with their own ambitions,” Mr Peston said.

Unlike Lloyds, RBS has been unable to escape the Asset Protection Scheme, which will see the bank’s taxpayer share increase from its current level of 70 per cent, to a maximium of 84 per cent.

Lloyds will still be expected to pay a fee of £2.5billion to the Treasury for its cover in the APS to date which, according to Mr Peston: “represents another massive transfer of wealth from Lloyds’ private-sector shareholders to the state.”

“I guess those shareholders will think the price is worth paying to stem the creeping nationalisation of Lloyds. But it is quite a price,” he adds.

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