UK Government Takes over Lloyd's

by Chris Sturr | March 07, 2009

From The Guardian:

Government takes over Lloyds

Taxpayer will own up to 77% of banking group after disastrous merger with HBOS as pressure grows on board to resign

guardian.co.uk, Saturday 7 March 2009 10.33 GM
Jill Treanor , Nick Mathiason and agencies

The government today confirmed it will take majority control of Lloyds Banking Group, with the taxpayer owning 65% of the voting shares in return for insuring 260bn pounds the group’s toxic assets.

After days of detailed negotiations the terms of the takeover were announced by the Treasury, with Lloyds making a commitment to lend at least 28bn pounds over the next few years.

The government is to insure the bank’s riskiest loans and in return the taxpayer will up its ownership of the bank from 43% to 65%–rising to 77% when non-voting shares are included.

Alongside taking extra shares and obtaining the commitment to lend to businesses and individuals, the Treasury will upgrade £4bn of the non-voting shares it already holds.

The government’s fee for limiting Lloyds’ losses from 260bn pounds of potentially bad assets totals £15.6bn. Under the insurance scheme, Lloyds will take the first hit of up to 25bn pounds on toxic assets before the taxpayer steps in.

The new ordinary shares in the bank will be offered to existing private shareholders first, with the government committing to buy whatever is left.

Stephen Timms, the chief secretary to the Treasury, told BBC Radio 4′s Today programme: “I think in due course this new Lloyds…is going to be a strong and successful bank, and the arrangements that we have been able to facilitate I think will ensure that this is going to be the case.”

Asked about speculation that the taxpayer could lose up to £100bn on the deal, Timms replied: “Precedents would suggest that the loss would be a great deal less than that, but as I said we just don’t know.”

Timms rejected suggestions that the prime minister had “destroyed a great bank” by pushing Lloyds to take over HBOS as it neared collapse.

Eric Daniels, the group chief executive for Lloyds Banking Group, said: “Participating in the government’s asset protection scheme substantially reduces the risk profile of the group’s balance sheet.

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