By Patricia Kowsmann
Of DOW JONES NEWSWIRES
LONDON -(Dow Jones)- Lloyds Banking Group PLC (LYG) on Tuesday unveiled a long-awaited plan to raise GBP21 billion in capital, as it looks to escape the U.K. government's expensive asset protection scheme.
The bank also said it will dispose of "a retail banking business" with a 4.6% current account market share and about 19% of its mortgage balances under European Union competition remedies. It will sell GBP180 billion in noncore assets over time, and will also be forbidden from making certain acquisitions in the next three to four years.
The bank, which is 43% owned by the government, said it will seek to raise GBP13.5 billion in a rights issue and GBP7.5 billion in an exchange of securities, including contingent-capital instruments.
The U.K. government has agreed to subscribe to enough shares to keep its stake at current levels, Lloyds said, adding that its Core Tier 1 capital ratio will rise to 8.6% from 6.3%.
The bank's move came after weeks of speculation on whether it could avoid participating in an expensive insurance program launched by the government earlier this year to help banks get out of the financial crisis.
If all efforts disclosed Tuesday are successful, it said, it would be able to avoid the APS plan altogether.
The scheme was drawn up to ring-fence banks' bad assets, and Lloyds agreed to join in exchange for a fee and a larger government stake.
In Lloyds' case, the government would insure roughly GBP260 billion in risky assets for a fee of GBP15.6 billion, which would be paid in the form of nonvoting shares. The bank would also be responsible for a first loss of GBP25 billion.
Since it agreed on the insurance in March, however, market conditions have improved, and in September the bank said it was considering alternatives to the expensive scheme.
Lloyds also said Tuesday that continued to deliver a good revenue performance in the third quarter on the lines of those delivered in the first half of the year.
It reiterated, though, that "we continue to expect the group to report a loss before tax for 2009, excluding the impact of the GBP11.2 billion credit relating to negative goodwill."
-By Patricia Kowsmann, Dow Jones Newswires. Tel +44(0)207-842-9295, patricia.kowsmann@dowjones.com