Lloyds Banking Group offering discount shares to raise £4bn

The bank wants to raise the funds to convert the £4bn in preference shares owned by the Government into ordinary shares.

The taxpayer owns 43.4 per cent of the bank, but if all other shareholders snub the issue, it could end up owning 65 per cent.

The bank had already announced that Sir Victor Blank would retire as chairman by June next year, amid mounting pressure after losses from its rescue takeover of struggling HBOS last year.

The bank’s fundraising plan, if successful, will also allow Lloyds to save itself £480m a year in dividend payments on the preference shares owned by the Treasury.

Previous share offers by banks needing Government support have been snubbed by investors because the price has been well above the market value.

But this latest move is likely to receive more support because the shares are being offered at 38.43p – a discount of almost 60 per cent to the current share price.

Lloyds has about 2.8 million private shareholders, who together own just under ten per cent of the bank.

The average Lloyds investor with 550 shares would have to spend about £130 to take up the new shares, said a spokesman.

Under the terms of the deal, any shares not taken up by investors will be sold in the market and any profits above the offer price will split among investors who did not take part.

Lloyds said discussions continued with the Government over its plans to place £260bn in toxic assets – mostly inherited from HBOS – into a taxpayer-backed insurance scheme. Talks are expected to be concluded in the next few months.

Lloyds was a conservatively run bank known for its strong dividend payouts and risk controls, but Sir Victor has paid the price for its fateful decision to rescue ailing HBOS last September.

HBOS lost almost £11bn last year and Lloyds said earlier this month that charges on bad corporate loans would be more than 50 per cent higher this year – dragging the overall group into the red and enraging investors.