Lloyds Banking Group investors have so far taken up over 65 percent of its offer to swap up to £7.5 billion ($10.8 billion) of bonds for higher quality debt, aimed at improving its balance sheet.

The part-nationalised British bank said the average take-up rate for the notes being offered was over 65% by today's first deadline.

A second deadline to take up the offer is 7 April.

Lloyds and other banks including Royal Bank of Scotland, UBS and Credit Agricole have launched bond buyback or exchange offers to strengthen the quality of their balance sheets.

"Obviously from Lloyds' point of view they want to get as much done as possible but getting two-thirds acceptance is probably not that bad," said Roger Doig, a fund manager at Schroders.

Its take-up was better than UBS received. The Swiss bank said last week it had bought back bonds for 537 million Swiss francs ($478 million) relating to a principal amount of 842 million francs, but had been prepared to buy back up to 1 billion euros of four subordinated issues.

Subordinated bank bond prices plunged in January and February on fears about missed payments, allowing banks to offer a premium to market prices but a big discount to their par value.
The moves give the banks a book gain that can be used to increase core Tier 1 capital.

Lloyds offered between 45% and 80% of face value on a range of Upper Tier 2 bonds, denominated in sterling, euros and U.S. dollars, issued by Lloyds TSB and HBOS, for conversion into senior unsecured bonds.

The subordinated bonds have on average rallied by at least 15 points since the offer was announced last Wednesday, a trader said.

The bonds were trading around 20 points below the offer price, which on average is around 50% of face value, but are now bid around 47% of face value depending on the issue, the trader added, agreeing that the take-up was good.

"At the very least, these buybacks help underpin the market because it is sending a signal that if the bonds fall below a certain point again the banks will step in once more and buy them back or exchange them," the trader said.

Credit Agricole's offer to buy back up to £750 million worth of Upper Tier 2 bonds today lifted prices by around 10 points on the issues, according to Deutsche Bank prices.

"The terms are generous with an offer price of 72% against a trading value of around 55 pre-announcement," said credit analysts at RBS, adding that they expected a very strong take up of offers at those levels.

Senior unsecured bonds rank higher than Upper Tier 2 bonds in a bank's capital structure.