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Lloyds bank looking to pull out of government asset protection scheme

Lloyds bank is today in talks with Treasury ministers and FSA regulators as the company looks to withdraw or reduce its proposed exposure to the government asset protection scheme. This is the scheme which would see Lloyds bank insure £260 billion of risky debt which is currently untradeable, therefore reducing any further downside in the short term. However, the company has been struggling to raise significant finance to cover premiums and many believe it will be forced to issue new shares to the government in lieu of the premium required.

However, Lloyds bank now believes that the UK economy has turned and is currently re-evaluating its loan portfolio and looking to reduce exposure to the government asset protection scheme by 50%. There is also talk that the company is still looking to withdraw completely from the plan but the failure to pass a recent FSA stress test would appear to have scuppered this particular plan in the short to medium term.

The main issue which Lloyds bank directors seem to have at this moment in time is the fact that issuing new shares to the government in lieu of the multibillion pound premium to protect the £260 billion asset portfolio would push the government share stake above 50% - something which the company wants to avoid at all costs.

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