UPDATE:Lloyds In Advance Talks To Avoid APS; EU Talks Ongoing
29 October 2009 - 11:51PM
Dow Jones News
Lloyds Banking Group PLC (LYG) acknowledged Thursday that it is
in advance talks with the U.K. government on plans to escape an
expensive asset-protection scheme, and it said any remedies imposed
by the European Commission won't be material to the bank.
"Based on the discussions to date, (Lloyds) is confident that
the final terms of its [Commission-mandated] restructuring plan,
including any required divestments of assets, will not have a
material impact on the group," the bank said.
Analysts said Lloyds' Commission comments provide a big relief
to the market, which was expecting massive changes to the bank's
operations in line with those announced by Dutch peer ING Groep
N.V. (ING).
Like with ING, Lloyds is being pressured to cut market share in
areas it is dominant for competitive reasons, in exchange for state
aid it received last year. The U.K. bank is 43% owned by the
government.
ING was forced to sell major parts of its business to meet
competition requirements.
"This basically means Lloyds structure will remain intact. They
will have to cut market share in some areas, but the changes won't
be anything like ING is facing," said Irfan Younus, a bank analyst
at NCB Stockbrokers.
In its first statement after weeks of speculation on how it will
work to avoid the government's scheme, Lloyds also said it will
have to pay the U.K. Treasury a fee if it doesn't participate in
the Government Asset Protection Scheme.
"There can be no certainty at this stage that any alternative to
the GAPS will proceed. All options remain open," the U.K. lender,
43%-owned by the government, said.
The scheme was drawn up to ring-fence banks' bad assets, and
Lloyds agreed to join in exchange for a fee and a larger government
stake.
In Lloyds' case, the government would insure roughly GBP260
billion in risky assets for a fee of GBP15.6 billion, which would
be paid in the form of nonvoting shares. The bank would also be
responsible for a first loss of GBP25 billion.
Since it agreed on the insurance in March, however, market
conditions have improved, and in September the bank said it was
considering alternatives to the expensive scheme.
Analysts have said the bank needed to raise about GBP25 billion
to avoid it.
Lloyds didn't provide any figures in Thursday's statement, but
it said that "any alternative proposals to GAPS would be likely to
include a substantial capital raising of core Tier 1 and contingent
core Tier 1 capital."
It added that options currently under consideration include a
combination of a rights issue and contingent capital raising, and
the exchange of existing securities. Contingent capital is a
special debt instrument that would convert to equity during times
of financial distress.
The capital raising is expected to be fully underwritten and
will be subject to shareholder approval, Lloyds said.
The lender declined to comment further on the GAPS plan and
talks with the Commission.
Citing sources, Sky News television reported Thursday that
Lloyds would sell its Scottish Lloyds TSB Scotland, its 164-branch
Cheltenham & Gloucester unit and online operation Intelligent
Finance as part of its deal with the E.U.
The bank was hard-hit by the financial crisis, especially
following its acquisition in January of ailing mortgage lender HBOS
PLC, which was pushed by the government.
The acquisition made Lloyds dominant in some markets in the
U.K., leading the Commission to request the bank to cut market
share for competitive reasons. The Commission has to approve both
the aid the banks received from the U.K. and the insurance
program.
Lloyds also said Thursday that its trading performance "has been
robust" over the past few months, without providing details.
At 1217 GMT, Lloyds shares were up 5 pence, or 6.6%, at 85
pence. The shares had been up about 3.8% before the company's
statement. Royal Bank of Scotland Ltd. (RBS), which is also under
pressure from the Commission to make divestments, saw its stock
jump after Lloyds' statement, gaining 3 pence, or 8.4%, at 43
pence
Company Web site: www.lloydsbankinggroup.com
-By Patricia Kowsmann, Dow Jones Newswires. Tel
+44(0)207-842-9295, patricia.kowsmann@dowjones.com