TEXT-Lloyds Banking Group announces asset protection deal
LONDON, March 7 (Reuters) - Following is the statement released by Lloyds Banking Group (LLOY.L: Quotazione) on Saturday about its involvement in a government asset protection scheme.
Lloyds Banking Group plc (Lloyds Banking Group or the Group) today announces its intention to participate in the Government's Asset Protection Scheme (the Scheme), substantially reducing its risk weighted assets and very significantly strengthening the Group's capital position. The Group has also agreed to replace the £4 billion of preference shares held by HM Treasury with new ordinary shares which will be offered to existing shareholders on a pre-emptive basis. Participation in the Scheme and the replacement of the preference shares is subject to, among other things, shareholder approval.
Eric Daniels, Group Chief Executive, Lloyds Banking Group, said: "Participating in the Government's Asset Protection Scheme substantially reduces the risk profile of the Group's balance sheet. Our significantly enhanced capital position will ensure that the Group can weather the severest of economic downturns and emerge strongly when the economy recovers. We believe that this is an appropriate deal for our shareholders." Details of the Scheme are set out in the press release issued by HM Treasury on 26 February 2009. The Group will continue working with HM Treasury to agree and finalise its accession to the Scheme. SCHEME AMOUNT
The Group intends to participate in the Scheme in respect of assets and exposures (Covered Assets) on its balance sheet with an aggregate par value of approximately £260 billion (expected to be approximately £250 billion net of December 2008 impairment provisions and writedowns). The Covered Assets are expected to include residential mortgages (c.£74 billion), unsecured personal loans (c.£18 billion), corporate and commercial loans (including commercial real estate and leveraged finance loans) (c.£151 billion) and treasury assets (including the Group's Alt-A portfolio) (c.£17 billion).
It is expected that approximately 83 per cent of the Covered Assets will come from HBOS legacy lending books and the balance from Lloyds TSB legacy books. FIRST LOSS
The Group will bear a first loss amount in respect of the Covered Assets. The amount of the first loss will be up to £25 billion ((after taking into account historic impairments and writedowns).
After the first loss, the Group will retain an exposure of 10 per cent of any further losses incurred in respect of the Covered Assets. The remaining 90 per cent of further losses arising in respect of the Covered Assets will be borne by HM Treasury. The Scheme will apply to losses incurred in respect of assets and exposures on the balance sheet as at 31 December 2008, regardless of when such losses are incurred. FEE AND RELATED ISSUANCE OF CAPITAL
Upon accession to the Scheme, the Group will pay a fee to HM Treasury of £15.6 billion. This fee will be amortised over an estimated 7 year period. The proceeds of this fee will be applied by HM Treasury in subscribing for an issue by Lloyds Banking Group plc of B Shares, carrying a dividend of the greater of 7 per cent per annum and 125 per cent of the dividend on ordinary shares.The B Shares will constitute core tier 1 capital. A summary of the expected terms of the B Shares is set out in Appendix 1. The overall cost to the Group of participating in the Scheme, as a percentage of the reduction in risk-weighted assets, totals 20.9 per cent. Continua...