Lloyds Bank in Talks with UK Gov't on Toxic Assets

LONDON_Britain's Lloyds Banking Group PLC said Friday it is negotiating with regulators about possibly reducing the amount of toxic assets to be covered by the Government Asset Protection Scheme, an insurance plan for securities that have become untradeable since the financial crisis.

Lloyds, in which the government holds a 43.4 percent stake, had announced in March that it intended to place 260 billion pounds ($425 billion) of those risky, untradeable assets in the program. That was expected to raise the government's stake in the bank to 65 percent.

Recent news reports have said that Lloyds had sought to avoid putting any assets into the program, but had been unable to persuade regulators.

"In light of improving economic conditions and the results of Lloyds' detailed reviews of its loan portfolios and their expected performance, Lloyds and H.M. Treasury are discussing possible changes to the commercial terms on which Lloyds might enter into GAPS from those announced in March 2009, including the possibility of reducing the amount of assets covered by the scheme," the bank said.

Lloyds shares traded at around 33 pence at the time of the March announcement, but they have rebounded since then, closing at pence 109.68 pence on Thursday. They were down 2 percent to 107.5 pence in early trading on the London Stock Exchange.

The Financial Times reported Friday that Lloyds had hoped to avoid joining the insurance program by raising 15 to 20 billion pounds through a rights issue and asset sales.

However, the paper reported that a stress test carried out by the Financial Services Authority found that Lloyds would be unable to raise that sum in the markets.

Lloyds was the second bank to sign up for the Government Asset Protection Program after Royal Bank of Scotland PLC, which agreed to a deal to insure 325 billion pounds of risky assets.

Lloyds Group was formed by Lloyds Group TSB's hastily arranged takeover of Halifax/Bank of Scotland, the nation's biggest mortgage lender, which had racked up huge losses.

In 2008, Lloyds Group TSB reported a 75 percent fall in profit to 819 million pounds, while HBOS lost 7.5 billion pounds, compared to a profit of 4.05 billion pounds in 2007.