- bailout - banking - financial crisis - UK
AFP - The British government said Saturday it will take a majority stake in Lloyds Banking Group and guarantee 260 billion pounds (290 billion euros, 365 billion dollars) worth of its toxic assets.
In a new round of bailing out struggling British banks, the state will increase its ownership of the group from 43 percent to 65 percent.
Lloyds Banking Group has also pledged to lend a further 28 billion pounds over the next two years as part of the package.
Under the government's insurance scheme terms, LBG has to take the first "hit" of up to 25 billion pounds on its toxic assets before the government steps in.
The deal was hammered out between bank and Treasury officials in recent days.
LBG was created earlier this year when Lloyds TSB bought rival lender HBOS, which faced collapse because it was struggling to raise funds due to the credit crunch.
"It's a very important announcement. It provides new certainty for Lloyds enabling it to commit new lending into the economy," Treasury minister Stephen Timms told the BBC.
"Lloyds will bare the initial loss on the assets being insured up to 25 billion pounds. It will pay a commercial fee of 16 billion pounds for participating in the scheme."
Last month, LBG announced that HBOS made a record pre-tax loss of 10.8 billion pounds for 2008 and wrote off 9.9 billion pounds worth of bad consumer loans.
Lloyds meanwhile made an 819 million pound profit, a 75 percent drop on last year.
George Osborne, finance spokesman for the main opposition Conservative Party, said the package showed that previous government measures to prop up the banking system had not worked.
"This massive second bail-out is proof that (Prime Minister) Gordon Brown's first bail-out failed, and the real test of it will be if credit starts flowing again in our economy," he said.
"It is also clear that the takeover of HBOS, which the prime minister helped orchestrate, is responsible for dragging Lloyds into majority public ownership."
The deal means that the Treasury has a controlling interest in another British bank.
Royal Bank of Scotland, which is 70 percent state-owned, has already signed up to a government asset protection scheme to insure assets worth 325 billion pounds.
In return, it has promised to lend 25 billion pounds to British consumers and businesses this year.