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November 4, 2009

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UK banks unveil capital blueprints

LLOYDS Banking Group Plc yesterday announced plans to raise at least 21.5 billion pounds (US$35.1 billion) in new capital through a record issue and debt swap.

At the same time, Royal Bank of Scotland Group Plc said it would dispose of assets to comply with conditions for surviving on state aid.

Both banks agreed to curbs on bonus payments, the Treasury said, describing the revised terms for taxpayer support as evidence of a marked improvement in conditions.

Lloyds' shares rose 2.1 percent to 86.8 pence on the London Stock Exchange but RBS stocks fell 3.9 percent at 37.16 pence.

"I believe that what we have got here is better structured," Treasury Chief Alistair Darling said in a British Broadcasting Corp interview. "It is a better deal for the taxpayer."

Lloyds said it would seek to raise a record 13.5 billion pounds through a rights issue, surpassing the 12.5 billion pounds raised in March by HSBC. It also said it would raise at least 7.5 billion pounds from an exchange of debt.

Lloyds, which was also bailed out by taxpayers at the height of the financial crisis, said it would not be subscribing to a government insurance program against losses on toxic assets - a move that will keep the public's stake in the bank at 43.4 percent after the government buys its allocation in the rights issue.

Lloyds said it had a "good revenue performance" in the third quarter and had pared costs by 2 percent so far this year. However, it still expects a full-year loss.

RBS, 70 percent owned by the government, announced that it had negotiated revised terms for insurance on toxic assets and disclosed disposal plans to comply with European Union conditions for receiving state aid.

Part of that deal calls for the government to inject 25.5 billion pounds of fresh capital via the purchase of B shares.


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