MercoPress. South Atlantic News Agency

Lloyds Banking Group considering how to limit government stake

The bank already 43% government owned could see that share increase to 60%

The UK part-nationalised Lloyds Banking Group may raise billions of pounds from shareholders to reduce its reliance on the taxpayer, it has been reported. The bank - which is 43% state-owned - is considering the move to avoid the £16 billion cost of placing billions in toxic debts into a taxpayer-backed insurance scheme, the Sunday Times reports.

Lloyds reported a £4 billion loss for the first half of 2009 last week after taking a £13.4 billion charge for bad debts - mostly from HBOS, the ailing bank it rescued last autumn.

The group agreed to put £260 billion worth of loans into the Asset Protection Scheme (APS) in March but could significantly reduce its participation if the Government agrees, the report said.

As well as the cost of the APS, Lloyds is also said to be concerned at the increase in the Government stake to more than 60% which would come with the move. Under the APS, Lloyds would be responsible for a first loss of up to £25 billion on the insured assets as well as 10% of further writedowns.

Analysts estimate the bank would have to raise between £10 billion and £15 billion from shareholders to shore up its finances if it pulled out of the scheme altogether. But Lloyds also said last week it expected its impairment charges on bad loans to have peaked in the first half of the year.

This led some investors to question the strategy of paying huge fees to the Government to insure against further losses, the newspaper adds. Some hedge funds are even said to be threatening to vote against the bank's move into the scheme, which must be approved by shareholders.