British govt finally takes charge of Lloyds

The British government finally took charge of Lloyds Banking Group today after agreeing to underwrite £260bn (€290bn) in “toxic” assets.

Under a deal struck late last night after weeks of detailed wrangling, the UK government’s stake in the struggling company will rise from 43% to at least 65%.

The Treasury will also buy billions of pounds worth of non-voting shares that could be upgraded later – potentially taking its interest to 75%.

In return, Lloyds has been ordered to help drag the UK economy out of recession by providing £28bn (€31bn) of extra mortgage and business lending over the next two years.

Ministers appeared to have forced through a far tougher package than envisaged by the Lloyds’ board, which had fought to avoid the bank becoming majority public owned.

The premium for insuring against losses on £260bn of bad assets will be £15.6bn (€17.4bn), or about 6%.

By comparison Royal Bank of Scotland, which has struck a similar deal, is being charged £6.5bn (€7.25bn) on the £325bn (€362bn) of assets it has insured.

Treasury Chief Secretary Stephen Timms said the move was necessary to give “certainty” for the economy. But he admitted that it was impossible to say how much it would cost the taxpayer.

Pressed on speculation that the final bill could reach £100bn (€111bn), Mr Timms told the BBC: “Precedents would suggest that the loss would be a great deal less than that but as I said we just don’t know.”

He denied that the government would have been better off simply taking Lloyds into public ownership. “Our view is that banks are best managed in the commercial sector, in private ownership."

Mr Timms rejected suggestions that British Prime Minister Gordon Brown had “destroyed a great bank” by pushing Lloyds TSB to take over HBOS in the autumn and prevent it from collapsing.

Some 83% of the toxic assets Lloyds Banking Group is insuring come from the HBOS side of the business.