UK banking giant Lloyds close to nationalisation

Negotiations on a fresh multi-billion pound injection of taxpayers' cash into Lloyds which would see the UK government take a majority stake in the bank appeared finely balanced today.

It is understood that talks between senior bank executives and the UK Treasury have been taking place since yesterday afternoon and there were hopes in Whitehall that an agreement could be announced to the London Stock Exchange later today.

However, in a statement last night, Lloyds Banking Group warned that there was still a lot of detail to be worked through and there was "no certainty" that a deal would be struck.

It is understood that under the terms of the proposals on the table, the British government would underwrite around £250bn (€280.75bn) in "toxic" assets held by Lloyds Banking Group, limiting its potential losses in a bid to get it lending again.

At the same time, the bank would convert the costly preference shares held by the British government - on which it is currently paying 12% interest - into ordinary shares, which attract no interest.

The move would see the British government's stake in the bank rise from 43% to around 60%, giving it a greater say in the way the bank is run as ordinary shares - unlike preference shares - carry voting rights.

A Treasury spokesman said last night that discussions were "ongoing", adding: "A deal will be announced at the conclusion of those discussions."

However Lloyds head of communications, Shane O'Riordain, said there could be no certainty about the outcome.

"Our conversations with the Treasury are continuing about our potential participation in the asset protection scheme," he said.

"This is a complex subject and there is a good deal of detail to be worked through. Our conversations have not yet concluded and there can be no certainty about the outcome."

The Treasury has already struck a similar deal with Royal Bank of Scotland. Lloyds has been forced to go to the British government for further support because of the heavy losses run up by HBOS which it took over to prevent its collapse.