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£260bn Lloyds asset deal agreed £260bn Lloyds asset deal agreed
(10 minutes later)
Lloyds Banking Group has agreed a deal with the Treasury that will see the government insure £260bn of the bank's loans, the BBC has learned.Lloyds Banking Group has agreed a deal with the Treasury that will see the government insure £260bn of the bank's loans, the BBC has learned.
Under the agreement, the government will increase its stake in Lloyds to around 60% from the current 43%.Under the agreement, the government will increase its stake in Lloyds to around 60% from the current 43%.
The deal was agreed on Friday night, but there are some legal formalities to be concluded. It is understood it will be formally announced in the morning.The deal was agreed on Friday night, but there are some legal formalities to be concluded. It is understood it will be formally announced in the morning.
Reports said Lloyds had been unhappy to give the government a majority stake.Reports said Lloyds had been unhappy to give the government a majority stake.
HBOS problemHBOS problem
Hugh Pym, BBC chief economics correspondent, said the deal would be "very awkward" for the Lloyds chief executive Eric Daniels and chairman Victor Blank.Hugh Pym, BBC chief economics correspondent, said the deal would be "very awkward" for the Lloyds chief executive Eric Daniels and chairman Victor Blank.
They have come increasingly under fire from shareholders for their decision to buy rival HBOS.They have come increasingly under fire from shareholders for their decision to buy rival HBOS.
It was the January takeover of HBOS - a move that was supported by the government - that has caused the problems at Lloyds.It was the January takeover of HBOS - a move that was supported by the government - that has caused the problems at Lloyds.
Lloyds was forced to announced last week that HBOS made a pre-tax loss of £10.8bn in 2008, which it has had to absorb.Lloyds was forced to announced last week that HBOS made a pre-tax loss of £10.8bn in 2008, which it has had to absorb.
By contrast, Lloyds, or Lloyds TSB as it was then known, made a profit of £807m last year, albeit an 80% fall on 2007.
Restore confidenceRestore confidence
The £260bn insurance deal is part of the Treasury's taxpayer-backed Asset Protection Scheme to insure banks' riskiest assets against further losses.The £260bn insurance deal is part of the Treasury's taxpayer-backed Asset Protection Scheme to insure banks' riskiest assets against further losses.
It was put forward by Chancellor Alistair Darling in a bid to restore confidence in the banking sector.It was put forward by Chancellor Alistair Darling in a bid to restore confidence in the banking sector.
Royal Bank of Scotland was the first bank to sign up, announcing last month that it would ask the government to insure £325bn worth of so-called toxic assets, which are difficult to value and currently cannot be sold.Royal Bank of Scotland was the first bank to sign up, announcing last month that it would ask the government to insure £325bn worth of so-called toxic assets, which are difficult to value and currently cannot be sold.
BBC political correspondent Carole Walker said there were now many people in Westminster who believed that full nationalisation of the banks would restore confidence in the sector more quickly than the Asset Protection Scheme.
"[They think] it would be simpler and easier for the government to nationalise the banks and that in the long-term it would save the taxpayer a lot of money," she said.
Some have pointed out that the government has put more money into RBS than its total share value, she added.