State to hold 43.4 percent of Lloyds-HBOS bank

LONDON (Reuters) - The government is to take a 43.4 percent stake in the combined Lloyds TSB-HBOS bank after shareholders largely shunned both lenders' rights issues, the two banks said on Monday.

Existing shareholders bought just 0.5 percent of the new Lloyds (LLOY.L) shares offered in its rights issue, and 0.24 percent of the HBOS HBOS.L shares, leaving the government to buy up the remainder, the banks said.

The government agreed to underwrite the two lenders' capital raisings as part of its 37 billion pound bailout of the banking sector in October last year.

The low level of shareholder participation in the Lloyds and HBOS rights issues was expected, as both banks' shares had fallen below the price at which new stock was offered to the market.

By 11:05 a.m., Lloyds shares were up 5 percent at 138.2 pence, below the rights price of 173.3 pence. HBOS shares were 4 percent higher at 82.9 pence, compared with a rights price of 113.6 pence.

"We understand that many existing shareholders did not participate because of the divergence between the offer price and the current market price," Lloyds TSB Chief Executive Eric Daniels said in a statement.

"We are pleased that the capital raising process has completed and that the new combined group will have a strong financial position."

CAPITAL STRENGTH

The twin rights issues will raise about 17 billion pounds in capital for the combined bank, buffering it against potential further losses on risky credit-related assets, as well as an anticipated rise in bad debts this year as the UK succumbs to recession.