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http://www.guardian.co.uk/business/2...es-over-lloyds


Government takes over Lloyds

Taxpayer will own up to 77% of banking group after disastrous merger with HBOS as pressure grows on board to resign
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* Jill Treanor , Nick Mathiason and agencies
* guardian.co.uk, Saturday 7 March 2009 10.33 GMT
* Article history

Lloyds TSB chief executive Eric Daniels. Photograph: Ben Stansall/AFP/Getty Images

Eric Daniels, the Lloyds chief executive, is among management under pressure to resign. Photograph: Ben Stansall/AFP/Getty Images

The government today confirmed it will take majority control of Lloyds Banking Group, with the taxpayer owning 65% of the voting shares in return for insuring £260bn of the group's toxic assets.

After days of detailed negotiations the terms of the takeover were announced by the Treasury, with Lloyds making a commitment to lend at least £28bn over the next few years.

The government is to insure the bank's riskiest loans and in return the taxpayer will up its ownership of the bank from 43% to 65% – rising to 77% when non-voting shares are included.

Alongside taking extra shares and obtaining the commitment to lend to businesses and individuals, the Treasury will upgrade £4bn of the non-voting shares it already holds.

The government's fee for limiting Lloyds' losses from £260bn of potentially bad assets totals £15.6bn. Under the insurance scheme, Lloyds will take the first hit of up to £25bn on toxic assets before the taxpayer steps in.

The new ordinary shares in the bank will be offered to existing private shareholders first, with the government committing to buy whatever is left.

Stephen Timms, the chief secretary to the Treasury, told BBC Radio 4's Today programme: "I think in due course this new Lloyds ... is going to be a strong and successful bank, and the arrangements that we have been able to facilitate I think will ensure that this is going to be the case."

Asked about speculation that the taxpayer could lose up to £100bn on the deal, Timms replied: "Precedents would suggest that the loss would be a great deal less than that, but as I said we just don't know."

Timms rejected suggestions that the prime minister had "destroyed a great bank" by pushing Lloyds to take over HBOS as it neared collapse.

Eric Daniels, the group chief executive for Lloyds Banking Group, said: "Participating in the government's asset protection scheme substantially reduces the risk profile of the group's balance sheet.

"Our significantly enhanced capital position will ensure that the group can weather the severest of economic downturns and emerge strongly when the economy recovers. We believe that this is an appropriate deal for our shareholders."

The company was forced to ask for further support because of the heavy losses run up by HBOS, which it took over to save from collapse.

The government has already struck a similar agreement with Royal Bank of Scotland (RBS), which last week posted a UK record loss of £24.1bn. RBS has agreed a deal to place £325bn of riskier assets such as commercial property loans and mortgage-backed securities into the government scheme.

The Lloyds deal will heap pressure on the group's senior management who will face calls to quit for walking into a merger that has dramatically destabilised the enlarged group. The board met throughout yesterday to discuss the terms offered by the Treasury.

In a day of frenzied speculation about the delay in agreeing terms, there were rumours the entire board was prepared to resign because of creeping government control.

Most of the pressure was on Sir Victor Blank, the chairman, who brokered the rescue takeover of HBOS last year with the approval of Gordon Brown.

Daniels was also feeling the heat after admitting that Lloyds had conducted between three and five times less due diligence when deciding the terms of the takeover.

Daniels is known to have been resisting running the bank with a taxpayer stake above 50%. The government's shareholding of 43% came about from the £17bn of public funds being injected into the enlarged bank during last October's bailout.

The rescue was made at the height of the bank