Treasury increases Lloyds stake to 65 per cent

The government has taken a majority stake in Lloyds Banking Group after offering the bank increased support under its new asset protection scheme.

Lloyds will receive £260 billion in funds, which will act as insurance for bad loans, and in return will hand over 22 per cent more of its equity to the taxpayer. The government’s share in the troubled lender now stands at 65 per cent.

Under the agreement, the troubled lender will also set aside £28 billion in new lending to the economy.

The move comes after the government offered £325 billion in funds to the Royal Bank of Scotland (RBS) under the same scheme. Previously, the government owned 69 per cent of RBS and its share in the bank is expected to rise to up to 95 per cent after the deal.

Lloyds Banking Group’s finances have buckled under the strain of losses caused by its government-backed merger with HBOS in October.

The combined entity announced a loss for 2008 due to a £10.8 billion pre-tax loss at HBOS. Lloyds itself made a profit of £807 million over the same period.

The government first took a stake in Lloyds TSB, RBS and HBOS in October last year when it injected £37 billion in emergency funds.