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Lloyds looks to better times ahead as it calls for cash
LLOYDS believes the UK economy is over the worst and it expects bad debts to fall significantly over the coming months.
The bank delivered its carefully upbeat assessment yesterday as it announced the UK's biggest-ever rights issue.
The group, which bought troubled Halifax Bank of Scotland earlier this year, is hoping to tap shareholders for a massive 13.5bn, even bigger than the record 12.5bn raised by HSBC earlier this year.
The group is raising the cash in order to avoid the Government's asset protection scheme (APS), which would have proved a lot more expensive and far more restrictive than raising cash from investors. The rights issue is part of a plan to raise 21bn in new capital.
Lloyds's chairman Sir Win Bischoff said: "The UK economy is now stabilising although we are far from having a rose-tinted view of prospects. But this is a more positive background than we had in March."
Over coming weeks Lloyds will be writing to its 2.8 million shareholders to persuade them to back the 13.5bn rights issue.
The improving conditions mean the bank has been able to drum up enough private interest to duck out of the APS, which would have seen it pay 15.6bn to insure 260bn in toxic loans. It would also have meant raising the taxpayer stake to 62 per cent from the current 43.5 per cent.
Lloyds still expects to make a loss this year but levels of bad debt are down significantly in the second half of the year.
Retail bad debts hit 3.3bn for the first nine months of the year. The wholesale banking arm has racked up 12.9bn in impairment charges so far this year as a result of the decline in commercial property prices which devastated the HBOS loan book.
It is looking for a stronger trading performance in 2010 and 2011.
Lloyds agreed to sell off at least 600 branches following long negotiations with Brussels over remedies for receiving state aid.
This will mean selling a 4.6 per cent share of personal current accounts to give the group a 25.5 per cent market share and 19 per cent of the group's mortgage assets.
Under the plan, Lloyds will dispose of 250 Lloyds TSB branches in England and Wales. No Halifax or Bank of Scotland branches will be included in the sale. It is not clear how many jobs will go in the sell off but banking union Unite estimated it could be 2,500.
Lloyds will sell the 164 branches and business of Cheltenham & Gloucester, which employs 850 people. It will also sell the 185 Lloyds TSB branches in Scotland, which employ 1,300 workers and Scottish-based internet bank Intelligent Finance, which employs 350.
Unite said this brought the total number of jobs at risk to 5,000.
Lloyds has around 3,000 branches following its rescue of HBOS at the height of the banking crisis. It has 1,800 outlets within the Lloyds TSB network and 1,100 HBOS outlets.
The heavily-discounted rights issue will be accompanied by a debt conversion offer expected to generate 7.5bn.
The Government will take up its rights as a shareholder in Lloyds to participate in the capital raising, investing 5.7bn of taxpayers' money to maintain its stake at 43 per cent.
Lloyds will pay the Government a fee of 2.5bn in return for the protection already provided by the taxpayer since the announcement of the asset protection scheme earlier this year.
The net 3.2bn outlay takes the public funds in Lloyds – which stood at around 14.5bn before yesterday – to almost 18bn.
The Lloyds board has come under fire since the acquisition of HBOS, which forced it to seek Government help, and former Lloyds chairman Sir Victor Blank stepped down in September.
Many believe chief executive Eric Daniels could also be forced out, but Sir Win dismissed the idea. "We believe we have the right team in place to deliver our strategy. Eric will be around for quite some time," he said.
BANKING IN BRITAIN: THE OTHER GIANTS
Abbey Group
n 22,300 staff
n 967 branches
n Abbey National
(including retail deposits
of Bradford & Bingley)
n Abbey National Treasury Services
n Cater Allen
n Alliance & Leicester
Barclays
n 54,700 staff
n 1,724 branches
n Barclays Bank
n Barclays Bank Trust Company
HSBC
n 49,200 staff
n 1,444 branches
n HSBC Bank
n HSBC Trust Company
Northern Rock
n 4,600 staff
n 56 branches
Bradford & Bingley
n 195 branches
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Saturday 26 May 2012
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