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21 May 2009

FT: Lloyds considers sell-off to win approval for state aid


Lloyds Banking Group believes it might have to sell assets in order to win European Commission approval for aid from the UK government. Lloyds expects that the aid approval request would need  a commitment to cut the size of its balance sheet.

Lloyds Banking Group believes it might have to sell assets in order to win European Commission approval for aid from the UK government.

 

Investors looking to take part in a £4bn ($6.3bn) placing and open offer of Lloyds shares were yesterday given an outline of the concessions that might be offered to Brussels in a state aid approval request being drawn up by the Treasury with input from the bank.

 

In the prospectus for the placing and offer, Lloyds said it expected that the aid approval request would need to be underpinned by a commitment to cut the size of its balance sheet significantly and/or submit to restrictions on its behaviour, although it stressed the situation was uncertain.

 

While it expected that any balance sheet shrinkage would be achieved by selling or otherwise exiting non-core businesses, it warned that it "could require the group to divest or exit core businesses".

 

Any disposals or restrictions could have a "materially adverse" effect on the group, it added.

 

Analysts at Credit Suisse said: "It is difficult to know whether this is a serious issue given the bank must highlight even low probability risks in the context of an open offer."

 

However, they argued that either way it highlighted how government involvement was a major consideration for Lloyds shareholders.

 

The British government recapitalised Lloyds last autumn and has also extended credit guarantees. In March, Lloyds announced that it wanted to take part in the government's asset protection scheme, which insures banks against the worst of their potential losses.

 

The equity placing and offer is being carried out to raise money to redeem £4bn in preference shares held by the UK government and replace them with ordinary shares, with the aim of decreasing government involvement in the bank.

 

Lloyds said: "We are working closely with the government on this issue [European Commission approval]. We believe that the success of our company is in the interests of our shareholders but also the stability of the UK banking system as a whole.

 

"We are already working towards a situation where state aid is no longer required."

Lloyds shares fell 7.9 per cent to 70.5p yesterday, reflecting the imminent dilution of the share capital by the placing and open offer.

 

By Adam Jones in London

 

Copyright The Financial Times Limited 2009

 



© Financial Times


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