Lloyds confirms £21bn fundraising

3rd Nov 2009 07:03

Lloyds Banking Group today confirmed the City's worst kept secret that it will raise £21bn through a £13.5bn rights issue and £7.5bn swap of existing debt for contingent capital.The details of today's string of announcements were in line with details published in Monday's papers. The government will take up its rights, investing £5.7bn net of an underwriting fee to keep its stake in Lloyds at 43%. A price for the record cash call, which is fully underwritten, will be declared on 24 November.The £7.5bn bond financing will count towards core tier one capital and convert into equity in the event of a "stress scenario", such as Lloyds' core tier one ratio falling below 5%. If the rights issue been completed on 30 June the ratio who have risen to 8.6% from 6.3%. Part-nationalised lender Lloyds will also pay a £2.5bn break fee to avoid being tied into the government's £260bn toxic asset protection scheme. "These proposals provide a significantly more attractive, market-based alternative to participating in GAPS and offer superior economic value to shareholders," said chairman Winfried Bischoff. "We believe that this represents a significant step towards meeting our, and the government's, objective that the group operates as a wholly privately-owned, self supporting commercial enterprise."Lloyds also said it and the Treasury have now finalised negotiations with the European Commission around the terms of a restructuring plan for banks that have received state aid.It's been clear from talks that the EC intends to require a commitment the bank will not make a discretionary payment of coupons or dividends on hybrid capital securities issued by it.The group thinks the relevant scheduled coupon or dividend payment dates that will affected are those falling within the two-year period beginning 31 January 2010.As part of the government's drive to boost competition, Lloyds has agreed to sell the TSB brand, Cheltenham & Gloucester, Lloyds TSB Scotland and internet business Intelligent Finance.It will sell 600 branches worth 4.6% share of the UK personal current accounts market and about 19% of the company's mortgage assets.A formal decision from the EC should be received by the end of 2009.The government, which put pressure on Lloyds to buy struggling HBOS, pumped £17bn into Lloyds last October to keep the bank afloat, although £2.3bn has been paid back.On current trading, chief executive Eric Daniels said the group is delivering in line with guidance in all key areas of the business.It still expects to report a loss before tax for 2009, excluding the impact of the £11.2bn credit relating to negative goodwill.