British banking and insurance major, Lloyds Banking Group Plc today announced its plans to raise £21 billion in capital in order to avoid the UK government taking majority control through its Government Asset Protection Scheme (GAPS).
The London-based Lloyds Banking Group, formed through the merger of Lloyds TSB and HBOS in January 2009, (See: Lloyds takes over HBOS in $21.7 billion deal with British PM Brown's support) said that it would raise £13.5 billion through share sale and £7.5 billion in exchange of securities, including contingent-capital instruments.
The proposed £13.5-billion rights issue would be the largest in British corporate history, pvertaking HSBC's £12.5-billion rights issue in March.
The British Treasury, advised by hegovernment-owned UK Financial Investments Limited, would subscribe in full for its 43-per cent entitlement of the fully underwritten £13.5-billion rights issue.
The bank, which is 43 per cent owned by the government also said it will dispose off its retail banking business with a 4.6 per cent current account market share and approximately 19 per cent of the group's mortgage balances.
Lloyds will also sell £180 billion non-core assets over a period of time and pay £2.5 billion to HM Treasury for the benefit to the group's trading operations as a result of the Treasury proposing to make Government Asset Protection Scheme (GAPS) available to the bank.
Lloyds' saleable assets include insurance operations, Scottish Windows and Clerical Medical, as its stake in wealth manager St. James's Place.
By not applying for the GAPS protection, the bank is trying to ward off the government from raising its stake to 62 per cent as well as being forced to incur £15.6 billion in fees.