Lloyds Bank recovers from 'toxic shock'

Nov 27, 2009

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Lloyds Banking Group (LSE: LLOY) launched a £13.5bn rights issue this week – a world record. It was priced at a 60% discount to its share price last Monday. The fundraising was overshadowed by the Bank of England's revelation that it had extended £61.6bn in emergency funds to RBS and HBOS last autumn because they were on the brink of complete collapse.

What the commentators said

So HBOS and RBS were closer to shutting down cash machines and being unable to honour payroll cheques "than anyone imagined", said Julia Finch in The Guardian. At one point RBS needed £40bn overnight. Had this been public knowledge, there would have been a run on the banks that would have made the queues outside Northern Rock "look like little social gatherings".

Shareholders in Lloyds didn't realise the extent of state support for HBOS when their bank was buying it last year, said David Wighton in The Times. Had they known, there might have been more resistance. It all goes to show that the government should have just nationalised HBOS instead of herding it into the arms of Lloyds, which consequently "ended up in hospital with toxic shock".

Now, however, the "light at the end of the escape tunnel is getting brighter", said Lex in the FT. Thanks to its fundraising, it will escape the government's insurance scheme for toxic assets, which would have cost it £15.6bn. But there are still some "daunting challenges", said Sharlene Goff in the FT. These include a tougher regulatory environment and the difficulty of fully integrating HBOS, while loan impairments may not have peaked yet, given the risk of the economy deteriorating further next year. "Lloyds is hardly "completely across the river", as one analyst put it.

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