Lloyds to raise £4 billion to repay government funds

Britain's state-controlled Lloyds Banking Group yesterday said that it will issue new shares to raise £4 billion so as to pay back public bailout funds.

The rights issue, worth the equivalent of €4.5 billion, will be tomorrow and is underwritten by the state, the bank said in a statement.

The news comes one day after LBG Chairman Victor Blank said he would step down from his post by June 2010. Mr Blank was sharply criticised for his role in Lloyds TSB's takeover of rival lender HBOS which was saddled with billions in toxic assets that have had to be covered by government money.

"Lloyds Banking Group confirms that it has agreed with HM Treasury to launch the previously-announced placing and open offer on May 20 2009," Lloyds said.

"The proceeds from the placing and open offer will be used to redeem the £4 billion of preference shares held by (the government)."

Under the terms of the offer, current shareholders can subscribe for 0.6213 new ordinary shares for every ordinary share they already own based on a price of 38.43 pence for each new year.

This price represents a discount of almost 57 per cent to Lloyds' closing share price on Friday. More details will be given tomorrow while shareholders will vote on the plans in early June. The British government owns around 43 per cent of Lloyds Banking Group and could end up owning as much as 65 per cent if other shareholders reject the new shares issue.

In yesterday's morning trade, LBG shares rallied 3.25 per cent to 92.10 pence as investors welcomed news over the weekend that Mr Blank would step down next year.

The Financial Times yesterday reported that former Citigroup chairman Win Bischoff and ex-Standard Chartered chairman Mervyn Davies were both in the running to replace Mr Blank.

HBOS bank faced potential collapse last year as it struggled to raise funds due to the credit crunch and had to be bailed out by the government.