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Darling tries to calm talk UK might take big stake in Lloyds

CHANCELLOR of the Exchequer Alistair Darling said on Saturday that United Kingdom banks are best run privately as he tries to calm speculation that the government is about to take a majority stake in Lloyds Banking Group Plc.

Darling said that the government has already put in place a program to help banks. The Treasury played down talk that Darling had discussions with Lloyds executives last weekend.

"I have made it clear on many, many occasions we believe that banks are best run on a commercial basis in the private sector, properly supervised and regulated," Darling told reporters in Rome. "That's our clear preference and our clear belief."

Lloyds' share price dropped 32 percent on Friday after saying it expects HBOS Plc, the UK lender it took over last month, to report a pretax loss of about 10 billion pounds (US$14.5 billion). The UK owns 43 percent of the firm after overseeing a bailout last year that combined the two lenders.

HBOS posted about 7 billion pounds of losses on loans to companies in 2008 as Lloyds applied "more conservative" accounting rules, the bank said on Friday. The loan impairments are more than double HBOS's own forecast in December.

Lloyds Chief Executive Officer Eric Daniels said last week that the bank would have done "three to five times" more due diligence on the government-brokered takeover had it not been for time pressures.

Lloyds agreed to buy HBOS as the UK's biggest mortgage lender came close to collapse when credit markets froze after Lehman Brothers Holdings Inc's bankruptcy.

Shares of Lloyds tumbled 29.5 pence to 61.4 pence in London on Friday, paring the bank's market value to about 10 billion pounds, Bloomberg News reported.

Lloyds TSB Plc originally agreed to pay 10.4 billion pounds in stock for HBOS. Three weeks later, the banks cut the price and accepted 17 billion pounds from the government to boost capital. The government now has a 43-percent stake in Lloyds via ordinary and preference shares.

"It looks increasingly as if Lloyds is being dragged under by the dead weight of HBOS," said Vince Cable, the opposition Liberal Democrats' spokesman on Treasury issues. "It looks as if Lloyds HBOS will now go into majority public ownership, followed inevitably by nationalization."


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