Treasury may allow Lloyds exit from APS


Treasury would consider allowing Lloyds Banking Group to exit the asset protection scheme (APS) if the bank can prove its ability to launch a successful rights issue.<br /><br />Lloyds is still in negotiations with the government over the terms of the APS, despite having agreed in principle to insure &pound;260bn worth of assets at a cost of &pound;15.6bn in B shares, converting at 115p.<br /><br />But chief executive Eric Daniels is keen that the government&rsquo;s stake does not rise above 50 per cent, while analysts estimate that a &pound;15bn capital-raising exercise would give the bank the capital strength it needs to avoid further government support.<br /><br />A well-placed source said yesterday that the option was gaining traction among Treasury officials.<br /><br />But it is understood that while the Treasury backs the idea in principle, it remains sceptical that the bank could pull off such a grand plan.<br /><br />&ldquo;The government doesn&rsquo;t want to insure assets if it doesn&rsquo;t have to. Any solution that achieves financial stability for Lloyds would be satisfactory,&rdquo; said the source.<br /><br />One major shareholder said that exiting the APS was being considered in the Lloyds boardroom, but warned that an independent capital-raising exercise would be risky.<br /><br />&ldquo;It&rsquo;s right that they&rsquo;re exploring all the options, but if we were to get a double-dip recession, Lloyds would be left paddling its own canoe with no insurance at all, threatening not just the bank but also UK financial stability,&rdquo; he said.<br /><br />Another investor said: &ldquo;I think it would be quite surprising if there is that much appetite for Lloyds&rsquo; stock. I really can&rsquo;t see how they could engineer this at all.&rdquo;<br /><br />Lloyds reported last week that impairments had peaked at &pound;13.4bn for the half year, with &pound;10bn of those assets destined for the APS. The improved outlook suggests that it may not need to use the scheme.