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March 8, 2009

Lloyds Banking Group passes to majority state ownership

by Gill Montia

Story link: Lloyds Banking Group passes to majority state ownership

The disastrous takeover of HBOS by Lloyds TSB has landed the Lloyds Banking Group merged entity in majority state ownership.

Negotiations on the group’s participation in the Government’s Asset Protection Scheme extended a week beyond their initial deadline and have ended in an agreement that could see the taxpayer’s stake in the business rise from 43% to around 65% or even 75%.

The higher stake could occur because the bank is also receiving an injection of capital in return for “B” shares which may, at some point in the future, be converted to ordinary shares, which carry voting rights.

Lloyds TSB, which has weathered the credit crisis relatively well, agreed to acquire HBOS in October of last year.

The deal was brokered by the Government and flouted competition rules.

The speed at which it was completed raised questions about the extent of due diligence and last week HBOS revealed that it had brought with it losses of £10.8 billion for 2008, against Lloyds TSB’s profit of £807 million for the year.

The group is now keen to place risky assets in the Government’s guarantee scheme and according to a BBC report, has £260 billion of toxic loans to insure.

Under the terms of the deal, Lloyds Banking Group will surrender to Government control and increase lending to businesses and individuals to £28 billion in the next two years.

Lloyds TSB shareholders have seen the value of their stock plummet since the announcement of the merger and the latest turn of events is likely to call into question the future of chairman, Sir Victor Blank, and chief executive, Eric Daniels.

 

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