Analysts say Lloyds could still exit APS
LLOYDS Banking Group could avoid the government’s Asset Protection Scheme (APS) altogether if it can raise £16bn via a rights issue, analysts from stockbroker Execution said yesterday.
The APS is a “sub-optimal way to recapitalise the sector”, analysts led by Joseph Dickerson said, adding that rights issue would lower the bank’s wholesale funding costs.
“Our analysis suggests banks with substantial government ownership have a higher cost of capital than those that do not,” the analysts said in a note.
“Lloyds has an opportunity to change this by not participating… at all.”
The note said £15bn in new capital, including a £1bn termination fee to cancel use of the APS with the Treasury, was not only “achievable”, but would see Lloyds sufficiently well capitalised to operate independently.
The analysts added that the APS made “little sense”, because it did not incentivise banks to minimise losses and would saddle the Treasury with a £575bn liability.
Sources close to the Lloyds board, led by chief executive Eric Daniels, have told City PM that the bank has secured sufficient appetite from institutional investors for a significant share placing.
Lloyds’ current agreement would see it insure £260bn worth of risky assets in return for £15.6bn in non-voting ‘B’ shares that would take the government’s stake in the bank to more than 60 per cent.