Lloyds recoups losses on first day after government bailout

The shares of Lloyds Banking Group recovered on Monday from the morning slump of about 17 per cent to close 4.1 per cent higher at 43.7 pence in the first day of trading after the UK government had underwritten 260 billion pounds of the bank's potentially toxic assets in return for increasing its stake in the bank to 77 per cent.

The banking shares were sharply lower in the morning session, which the analysts attributed to Lloyds deal.

Lloyds chief executive Eric Daniels defended the bank's decision.

"Whereas before the posture was that capital ratios could drift down towards the regulatory minimums as conditions worsened, the thinking now is that capital should be looked at in the face of a reasonably severe stress," he told an analysts meet on Monday.

''That is one of the impetuses behind looking at the appropriate amount of capitalisation that is necessary and how much should be thrown into the scheme,'' he said.

In 2008, the government had infused 17 billion pounds into Lloyds following its rescue takeover of stricken HBOS, giving it a stake of 43 per cent.