Lloyds TSB and HBOS plan capital raising

Lloyds TSB and HBOS plan to raise approximately £17 billion between them with a government-backed plan.

The two banks, which plan to merge in January subject to shareholder approval, will raise cash from shareholders in order to meet the government's new rules on capitalisation.

Lloyds TSB said it will offer its shareholders approximately 2.6 billion ordinary shares at 173.3p per share and is hoping to raise £4.5 billion through the rights issue.

Given that banks may not be able to pay out dividends until they have repaid their government loans, the take-up is unlikely to be high.

However, the government has promised to buy any shares left over. In addition, the Treasury has agreed to subscribe to £1 billion of new preference shares in Lloyds TSB.

HBOS is also proposing an addition £8.5 billion equity placement as well as £3 billion of new preference shares to increase its tier one capital ratio to 11.5 per cent.

Not only would this meet the government requirements for wholesale funding but it would also strengthen the bank's position "following deposit outflows in September and in the first half of October, which have now slowed significantly," HBOS said.

The proposed acquisition of the HBOS Group by Lloyds TSB is "proceeding according to plan", the banks also said today.

The Lloyds TSB meeting to approve the acquisition will be held on November 19th 2008, while the HBOS meeting will take place in December 2008.

Provided the shareholders agree – the government has already cleared the deal – the acquisition will go through in January.