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Lloyds bank returns £2.3 billion to the Treasury

In a bizarre turn around, the £4 billion fund raising which has just been completed by Lloyds bank will see around £2.3 billion returned to the Treasury as part payment against funds used to keep the business afloat. The taxpayer spent £1.7 billion acquiring new shares in the recent rights issue and these will remain in government hands until the 43% stake in sold, which many expect to be in 2010.

The UK government also exchanged a number of convertible shares into ordinary shares, saving Lloyds bank around £480 million year in interest payments. While it may seem somewhat bizarre for the UK Treasury to be injecting £1.7 billion into acquiring new shares while at the same time receiving £2.3 billion from Lloyds bank this will in due course free up the Lloyds Banks balance sheet and assist with the rebuilding of the company.

There is no doubt that the HBOS merger has significantly impacted upon the reputation and the financial strength of Lloyds bank and while the UK government was known to be behind the merger there appears to be little in the way of good will towards the directors of Lloyds bank. Indeed chairman Victor Blank received a hot reception at this week's shareholders meeting where he was heckled and asked to stand down.

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