The scheme was set up to ring-fence bad assets from the banks. Lloyds had originally agreed to put around £250bn into the scheme in return for taxpayers taking a larger stake in the group. The UK taxpayer currently owns just over 40% of the group and full participation in the GAPS would take it to around 60%.
The group said that it was considering an alternative structure in light of improving economic conditions, including putting less into the scheme. Recent press reports have suggested that Lloyds had mooted a rights issue, preference share conversion or the buy-back of subordinated debt , but the Financial Services Authority had vetoed the proposals after stress-testing.
Chief Executive Eric Daniels said last month that he felt the worst was over for the group and suggested that it might not need the government plan. Management is likely to be reluctant to surrender further control to the state .
The markets reacted badly to the news, sending the shares down 1.2% to 108.36p. The move comes days after Barclays offloaded $12.3bn of toxic assets into a special credit vehicle to avoid further write-downs and increased worries about the banking sector. Lloyds’ shares had staged a small recovery from their March lows, but the group is still considered too toxic for many with concerns remaining over the Halifax business.
