U.K. Government Takes 65% Lloyds Stake

Another multi-billion pound injection of public cash into Lloyds Banking Group was announced today.

The British government is to insure £260bn (€290bn) of the bank's potentially toxic assets.

In return, the British taxpayer will up its ownership of the bank from 43% to 65% - or 77% including non-voting shares.

AdvertisementLloyds Banking Group has also pledged to lend an additional £28bn (€31.25bn) over the next two years as part of the deal.



Lloyds Banking Group was the FTSE 100 Index's leading riser yesterday amid hopes that a deal was close to limit its potential losses.

The Treasury has already struck a similar agreement with Royal Bank of Scotland.

Lloyds has been forced to ask for further support because of the heavy losses run up by HBOS, which it took over to prevent its collapse.

RBS, which last week posted a UK record loss of £24.1bn (€26.9bn), has agreed a similar deal to place £325bn (€362bn) of riskier assets such as commercial property loans and mortgage-backed securities into the government scheme.

Shadow chancellor George Osborne said the Lloyds package amounted to another admission of failure by the Prime Minister Gordon Brown.

'This massive second bail-out is proof that Gordon Brown's first bail-out failed, and the real test of it will be if credit starts flowing again in our economy,' he said.

'It is also clear that the takeover of HBOS, which the Prime Minister helped orchestrate, is responsible for dragging Lloyds into majority public ownership.'

Lloyds' share price fell 31% in London trading in the past week on rising concerns about the bank's ability to absorb the losses at HBOS.

The government's objective in insuring bank assets is to promote lending by taking on some of the risk. Although last year's round of capital injections did stem some of the sector's share-price collapse and did build up banks' capital reserves to better levels than before, lenders were under little pressure to actually spend the cash and grease the wheels of the rickety economy.

Royal Bank of Scotland (nyse: RBS - news - people ), which is 70% government-owned, agreed in principle Feb. 26 to an asset-insurance deal that could see the state increase its stake to 95%.