Lloyds set to raise funds to avoid 'toxic asset' scheme

Lloyds Banking Group confirmed today it was in advanced talks with Government and regulators over a potential fundraising that will allow it to side-step the toxic asset protection scheme (APS).

British bank Lloyds confirmed today it was in advanced talks with British government and regulators over a potential fundraising that will allow it to side-step the toxic asset protection scheme (APS).

The part-nationalised bank said it would pay a fee to the British Treasury in return for benefits of the "implicit guarantee" it has already received since the APS was announced in March if it does not take part in the scheme.

Lloyds was reported today to have begun sounding out investors over a potential £25 billion capital-raising to withdraw from APS, which is designed to insure banks against their bad assets.

The group, which is 43% owned by the taxpayer, also sought to reassure over its planned restructuring to address European Commission concerns amid fears it may have to divest most of the HBOS business it bought last year.

It said it was confident from talks so far with Europe that any overhaul would "not have a material impact on the group".

Lloyds has around 3,000 branches following its rescue of HBOS at the height of last year's financial crisis - 1,800 within the Lloyds TSB network, 1,100 HBOS outlets and 164 under the Cheltenham & Gloucester brand.

It is thought the European Commission may force Lloyds to sell its C&G branches and around 500 Lloyds TSB outlets in Scotland.

Lloyds has been under increasing pressure in recent weeks as simultaneous deadlines loom for both the European remedies and UK asset protection scheme.

The bank stressed today there was no certainty it will go ahead with any alternative to the APS and said all options remained open.

Its comments come as doubts mount over an investor cash call following a recent tumble in bank share prices.

Lloyds has suffered alongside fellow banking stocks in the wake of news of a major restructuring at Dutch bank ING, forced by Brussels as part of draconian measures to remedy state aid.

This led to worries it could struggle to complete the reported £11bn (€12.3bn) rights issue it is looking to launch as part of a wider £25bn (€28bn) fundraising.

But its reassurances helped shares recover by 9% today, with fellow British state-owned group Royal Bank of Scotland also up by 11%.