Taxpayers 'to take a 60% stake in Lloyds'

A DEAL that would see the government become the majority shareholder in the new Lloyds "superbank" is on the verge of being clinched, it was reported last night.

Talks between senior bank chiefs and Treasury officials may lead to an official Stock Exchange announcement as early as today.

Last night, opposition politicians said the move showed Lloyds' takeover of HBOS, which was "encouraged" by the government, was "a bad decision".

Under the proposed deal, the government would agree to underwrite about £250 billion in "toxic" assets held by Lloyds Banking Group, which was formed after the controversial takeover of HBOS by Lloyds.

Treasury sources say the deal would see the taxpayers' share in the bank rise from the current 43 per cent to 60 per cent, giving ministers a much greater say in how the new bank is run.

The bank would convert the costly preference shares held by the government – on which it is currently paying 12 per cent interest – into ordinary shares, which attract no interest.

A Treasury spokesman said: "Discussions are ongoing. A deal will be announced at the conclusion of those discussions."

But a spokesman for the Lloyds Banking Group last night insisted there was "no certainty" it would join in the government's asset protection scheme to underwrite its "toxic" assets.

The group's head of communications, Shane O'Riordain, said: "Our conversations with the Treasury are continuing about our potential participation in the asset protection scheme.

"This is a complex subject and there is a good deal of detail to be worked through. Our conversations have not yet concluded and there can be no certainty that we will participate in this scheme."

The Treasury has already struck a similar deal with Royal Bank of Scotland.

Lloyds has been forced to go to the government for further support because of the heavy losses run up by HBOS, which it took over to prevent its collapse.

If the deal goes through it will raise fresh questions about why the takeover of HBOS by Lloyds was allowed to go ahead.

The Scotsman spearheaded a campaign, backed by politicians and business leaders, questioning the wisdom of the deal.

A Conservative spokesman said: "If true, this is more evidence of the sheer depth and scale of Labour's recession, and more evidence that Brown and Darling's measures on the economy have simply not worked."

Vince Cable, the Liberal Democrats' Treasury spokesman, said: "This would effectively nationalise Lloyds and inevitably pose questions about how the government is going to be involved in running Lloyds.

"It also highlights what a bad decision it was for Lloyds to take over HBOS. The government did not prevent the takeover, in fact it encouraged it and we've ended up with two banks nationalised instead of just one."

Stewart Hosie, the SNP Treasury spokesman, said: "This confirms the Prime Minister is 'Culpability Brown'. Scotland was continually told, and so were the courts, that a merger with Lloyds was the only way to prevent HBOS being nationalised.

"Now we see the Lloyds Group – not only HBOS but Lloyds TSB, too – effectively falling into public ownership. Gordon Brown's claims to 'save the world' fall further apart every day."

Worries grow over huge risks

REPORTS that the government is taking on some £250 billion of troubled loans from Lloyds Banking Group adds to an increasingly disturbing picture of crisis in the financial sector, writes Bill Jamieson.

The key focus of attention today will be on the Lloyds chief executive, Eric Daniels, who was reported to be fighting to keep the government shareholding below 50 per cent.

A deal of this order would be a humiliation for Lloyds directors who negotiated the acquisition of HBOS last autumn. Lloyds shareholders will be deeply unsettled by this turn of events, but the growing ferocity of the recession may have left the bank with no option but to seek assistance.

Worries will now intensify on the scale to which the British government is acting as insurer to the banking system, it is taking on huge risks. If this turned out to be a global depression, with huge losses for banks, fiscal solvency might even come into question.