Lloyds first to repay part of £37bn bailout

Lloyds Banking Group will become the first bank to repay some of the UK government's £37 billion (Dh216.55bn) bailout of the British banking system after raising £3.5bn from shareholders. A number of banks are taking the first steps towards repaying taxpayers after massive state intervention at the height of the global financial crisis last year. In the United States, Morgan Stanley, JPMorgan Chase and American Express all announced plans in the last week to sell shares as they position themselves to repay billions of dollars borrowed under the US Treasury's Troubled Asset Relief Programme. US regulators are expected to name the first round of banks allowed to repay bailout funds this week. Britain's Lloyds said in a statement yesterday that 87 per cent of shareholders had accepted an offer to buy new shares at 38.43 pence each, a steep discount to Friday's closing price of 66.2 pence, and the remaining unallocated shares were being sold in the open market, raising a total of at least £4bn, which will be used to buy back preference shares issued to the government last year as part of a £17bn injection into the banking group. Despite the discount on the offer, analysts said it was not particularly surprising that some nervous and angry shareholders had chosen not to take part after an 86 per cent slide in Lloyds' share price since early 2007. "Given its substantial disenchanted retail shareholder base, the failure of more than 23 per cent of non-government shareholders to take up their entitlements... is not particularly surprising," analysts at Exane BNP Paribas said in a note to clients. Those who have not chosen to subscribe to the offer will get something for their pains over the last two years, however. They will receive any surplus from the open market placing that results from the difference between the offer price and the market price. Assuming all the outstanding shares are sold, the government's stake in Lloyds will be unchanged at 43.4 per cent because it has subscribed to the rights issue at a cost of about £1.7bn meaning that by the end of the process £2.3bn of taxpayers' money will have been repaid. Lloyds has said that it expects the buyback of the government's preference shares will boost its capital strength, raising its core Tier 1 ratio by about 0.8 per centage points to 6.7 per cent. It will also remove the need to pay the government £480m a year in dividend payments on the preference shares and clear the way for Lloyds to begin paying dividends to ordinary shareholders "as market conditions and the financial position of the group permit". Keep up with the latest business news from the region with the daily Emirates Business 24|7 newsletter. To subscribe to the newsletter, please click here .