Ian Fraser - Business and Financial Journalist Ian Fraser Blog Archive IS Lloyds THE NEW ENRON?

IS LLOYDS THE NEW ENRON?


Doubts remain as to whether the authorities were right to allow Lloyds Banking Group to proceed with its proposed £13.5bn rights issue and whether investors should participate. Here Ian Fraser argues that the FSA should never have given its blessing to this particular capital-raising and why, if a rights issue does proceed, shareholders should avoid it like the plague.

How gullible are people in the City? It’s a moot point but one worth exploring given Eric Daniels’ expectation that investors in the Square Mile can be persuaded to inject a further £13.5bn into Lloyds Banking Group’s shares through a rights issue as part of his planned £21bn monster capital raising, which will leave the bank 43% owned by the UK government.
The chain-smoking Lloyds boss, pictured above with his Crackberry, needs the money because of the dire state of Lloyds balance sheet, the need to recapitalise (again) and because he is so keen to avoid having to participate in the government’s Asset Protection Scheme. Much of this stems from his catastrophic decision to buy HBOSicon last September.
If the bank were to fully participate in GAPS, the government’s stake in LBG would rise from 43% to 62% — which would be equivalent to full nationalisation and would make Lloyds much more susceptible to being fully broken up by the European Union.
While savvy investors can at the very least be expected to be sceptical of Daniels’s proposals, there may still be some who are prepared to give him the benefit of the doubt. This post is mainly for their benefit.
Llodys certainly got shafted by Brown with this deal.