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Lloyds bank cedes control to government
By Andrew MacAskill |
March 9, 2009, Monday
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Print Edition
Print Edition
LLOYDS Banking Group Plc, Britain's biggest mortgage lender, will cede control to Prime Minister Gordon Brown's government in return for state guarantees covering 260 billion pounds (US$367 billion) of risky assets, Bloomberg News reported on Saturday.
The government's stake will rise to as much as 75 percent, making Lloyds the fourth British bank to slip into state control since the run on Northern Rock Plc in September 2007. Brown is using that leverage to force banks to increase lending and spur an economy facing its worst recession since World War II.
"In order to get British banks lending again the government needed to take them over," said Simon Willis, an analyst at NCB Stockbrokers Ltd. "It is likely to be at least three of four years before the banks return to the private sector."
Lloyds will pay more for asset protection than Royal Bank of Scotland Plc, the first lender to enter the program, because of the deteriorating quality of loans acquired when it bought HBOS Plc in a government-brokered deal. Lloyds will pay 15.6 billion pounds, or 5.2 percent of the insured assets, in the form of non-voting shares, the bank said in a statement.
About 83 percent of the assets Lloyds is insuring came from HBOS, the bank said.
The HBOS loan book "is more toxic than anyone ever dreamed," said Alan Beaney, from Principal Investment Management. "As a Lloyds shareholder, you are annoyed because you had a bank that did not need the government very much and now you have inherited a rubbish bank."
In September, Lloyds agreed to buy HBOS for about 7.7 billion pounds as the government sought to prevent HBOS from collapsing.
Last month HBOS posted a pretax loss of 7.5 billion pounds, bigger than Lloyds anticipated at the time of the takeover, and Chief Executive Officer Eric Daniels said that he would have liked more time to examine HBOS's accounts before the purchase.
The government's stake will rise to as much as 75 percent, making Lloyds the fourth British bank to slip into state control since the run on Northern Rock Plc in September 2007. Brown is using that leverage to force banks to increase lending and spur an economy facing its worst recession since World War II.
"In order to get British banks lending again the government needed to take them over," said Simon Willis, an analyst at NCB Stockbrokers Ltd. "It is likely to be at least three of four years before the banks return to the private sector."
Lloyds will pay more for asset protection than Royal Bank of Scotland Plc, the first lender to enter the program, because of the deteriorating quality of loans acquired when it bought HBOS Plc in a government-brokered deal. Lloyds will pay 15.6 billion pounds, or 5.2 percent of the insured assets, in the form of non-voting shares, the bank said in a statement.
About 83 percent of the assets Lloyds is insuring came from HBOS, the bank said.
The HBOS loan book "is more toxic than anyone ever dreamed," said Alan Beaney, from Principal Investment Management. "As a Lloyds shareholder, you are annoyed because you had a bank that did not need the government very much and now you have inherited a rubbish bank."
In September, Lloyds agreed to buy HBOS for about 7.7 billion pounds as the government sought to prevent HBOS from collapsing.
Last month HBOS posted a pretax loss of 7.5 billion pounds, bigger than Lloyds anticipated at the time of the takeover, and Chief Executive Officer Eric Daniels said that he would have liked more time to examine HBOS's accounts before the purchase.
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