Lloyds starts chairman hunt

By Steve Slater

LONDON (Reuters) - Lloyds Banking Group said shareholders who do not take up its offer to buy up to 4 billion pounds of shares will now receive any profit made from the sale of the shares.

The part-nationalised British bank, which on Sunday announced its Chairman Victor Blank will leave in the next year, has the largest shareholder base in Britain following its takeover of HBOS.

Its 2.8 million private investors are being offered 0.6213 shares at 38.43 pence apiece for each share owned to replace preference shares held by the government and boost its capital.

By 8:35 a.m. Lloyds shares were up 4.9 percent at 93.6p, outperforming a flat European bank sector.

The fundraising was announced as Lloyds kicked off the search for Blank's replacement, after he said he will step down before the bank's annual shareholder meeting in 2010.

Blank faced a potential shareholder revolt at next month's AGM after intense criticism of the bank's takeover of HBOS, where bad debts on corporate and home loans have soared, dragging it to a 10 billion pound loss last year.

Possible candidates for the role include Mervyn Davies, the former Standard Chartered boss who is now a trade minister; Win Bischoff, the former Citigroup chairman; and Lord Leitch, who has been promoted to Lloyds deputy chairman.

Some investors still want to oust Blank next month rather than next year.

"We would prefer to see him go sooner rather than later," said private lobby group the UK Shareholders Association, saying it was encouraging its members to vote against his re-election on June 5.

130 POUNDS FOR JOE PUBLIC

Lloyds said in March it would offer shareholders the option to buy up to 4 billion pounds of shares, with the government buying any shares not taken. Investors not subscribing were not expected to have been compensated for the dilution.

But Lloyds shares have rallied in the last two months and now any shares not taken up in the offer will be sold in the market and any profit over 38.43p per share will be distributed to investors who did not take up their entitlement.

The government will buy shares in relation to its current holding, worth about 1.7 billion pounds, but is not expected to buy any extra, keeping its stake at 43 percent.

The average qualifying private shareholder owns about 550 shares, so they will have the option to buy another 340 new shares for about 130 pounds.

The offer will allow Lloyds to restart paying dividends. It does not plan to do so this year, but said it wants to resume payments as soon as market conditions and its finances permit.

The fundraising will reduce an annual cost of 480 million pounds on the preference shares. Together with its participation in a government-backed asset insurance plan, it will lift the bank's Tier 1 capital ratio to about 14.5 percent, one of the highest in the sector.

But Lloyds is likely to post another loss this year and possibly next year, according to analysts.

(editing by John Stonestreet and David Cowell)

Article Published: 18/05/2009