|
| Personal finance articles |
|
|
|
Lloyds shares get back on track
By Rebecca Atkinson
Shares in Lloyds Banking Group (LLOY) pulled back from an early 15% slump on Monday after investors vented their disappointment over the heavy price Lloyds is paying to insure £260 billion worth of assets.
Under the scheme, Lloyds will will pay the Treasury a fee of £15.6 billion over a seven-year period to insure its riskiest assets. The majority of these come from HBOS although £44 billion is from Lloyds TSB.
Eric Daniels, group chief executive at Lloyds Banking Group, said: "Participating in the Government's Asset Protection Scheme substantially reduces the risk profile of the group's balance sheet. [This will] ensure the group can weather the severest of economic downturns and emerge strongly when the economy recovers."
He added: "We believe that this is an appropriate deal for our shareholders."
Lloyds will bear a loss of up to £25 billion, with 90% of any further losses borne by the Treasury. It is anticipated that around 83% of the losses will come from both HBOS' and Lloyds' legacy lending books.
In return, Lloyds has promised to boost new lending by £228 billion. This figure dwarfs lending commitments made by other state or semi-state owned banks. Royal Bank of Scotland, which is also participating in the Scheme, is increasing new lending by £25 billion over the next 12 months in return for the Government insuring £325 billion of its bad debt.
Nic Clarke of Charles Stanley says: "We believe that the threat of complete nationalisation has been reduced significantly through this deal. Lloyds states that it can now weather the severest of economic downturns as its assets have been thoroughly stress tested.
"The group will be loss making in 2009 and there is a chance that the group will be loss making in 2010, despite the synergies from HBOS coming through, unless the outlook for the UK economy improves. And of course if the group is making a loss it is unlikely to pay a dividend, whether it is blocked or not.
"But on a more positive note, at least today's announcement should improve the group's credit ratings and takes it a step nearer to a time when the market is able to value the group on an earnings basis."
Investors were, however, dealt a further blow with Lloyds staff in line for bonuses totalling around £80 million, despite the bank now being 65% owned by the taxpayer.
However, members of the board have pledged to forgo their remuneration payments and Lloyds says the average wage of staff due to receive bonuses is just £17,000.
Simon Denham, managing director of Capital Spreads, says Lloyds' share price will take a sharp hit during trading today, as investors jump ship.
"It was almost inevitable that the group was going to end up with such a huge amount of its assets insured in the Asset Protection Scheme," he adds. "The only real good thing to have come from the whole of this dire situation is that we have now drawn a line in the sand and one could almost go as far as to say that the banking sector is through the worst, although there could well be the odd skeleton lurking in the cupboard."
To get stories like this delivered to you every morning, sign up for our Daily Market Outlook newsletter.
Useful links:
|
Send Article by Email
Send Article by IM
Blog This with Y! 360
Printable View