By Steve Slater
LONDON (Reuters) - Britain will get a stake of up to 77 percent in Lloyds Banking Group
Lloyds will pay a 15.6 billion pound fee to participate in the deal, and will take the "first loss" of up to 25 billion pounds on the assets. Thereafter, the government will assume 90 percent of any losses on the value of the assets.
The deal will see the government's stake in Lloyds rise to 65 percent from 43 percent if shareholders do not take up an offer to buy 4 billion pounds of shares. The government's stake could rise to 77 percent if 'B' shares are converted, but its voting stake will be capped at 75 percent.
Lloyds is following Royal Bank of Scotland
The plan will limit the losses banks could suffer if the economy continues to deteriorate and loans sour.
It will slash the risk on assets Lloyds holds and boost its core tier 1 ratio to 14.5 percent from 6.4 percent.
Eric Daniels, Lloyds chief executive, said the deal "substantially reduces" the bank's risk profile.
"Our significantly enhanced capital position will ensure that the group can weather the severest of economic downturns and emerge strongly when the economy recovers," he said in a statement.
GOVERNMENT UNDER PRESSURE
Lloyds has committed to increase lending to home owners and businesses in the next year by 14 billion pounds, and by the same amount the year after, something the government is demanding as a drying up of credit is strangling an economy already in recession.
Treasury Minister Stephen Timms said the deal provided certainty for the bank.
"In due course Lloyds is going to be a strong and successful bank and the arrangements we have been able to facilitate will make sure that is going to be the case," he told BBC Radio.
Prime Minister Gordon Brown's Labour Party is trailing the opposition Conservatives by some 20 points ahead of an election that must take place by June 2010.
He insists Britain is victim of a world financial crisis that nobody saw coming. But his opponents say, as architect of Britain's financial regulation structure, he bears much of the blame, and accuse him of botching bank rescues.
"It is ... clear that the takeover of HBOS, which the prime minister helped orchestrate, is responsible for dragging Lloyds into majority public ownership," Conservative finance spokesman George Osborne said.
SHARE OFFER
Lloyds has been locked in talks with the Treasury for more than a week, and had wanted to limit the government taking a majority stake.
Its problems stem from its takeover of HBOS in January, which exposed the traditionally conservative Lloyds TSB to billions of losses from bad corporate loans, rising defaults on home loans and losses on toxic assets. HBOS made a 10.8 billion pound loss in 2008.
Some 83 percent of the assets being insured will come from HBOS's legacy lending book.
Under the deal, Lloyds is replacing 4 billion pounds of preference shares already owned by the government with ordinary shares, which are being offered to shareholders to buy at 38.4 pence each. The Treasury will buy any shares not taken.
A mix of assets will be put into the scheme -- some 151 billion pounds of corporate and commercial loans, 17 billion pounds of treasury assets, 74 billion pounds of residential mortgages and 18 billion pounds of unsecured personal loans.
Analysts had expected Lloyds to put about 250 billion pounds of its riskiest assets in the insurance scheme.
The government has already insured 325 billion pounds of assets owned by RBS, which could lift the state's 70 percent stake up to as much as 95 percent.
($1=0.7030 Pound)
(Additional reporting by Stefano Ambrogi; Editing by Mike Peacock)
