Morning:
8°c
It's all well and good getting your Windows XL spreadsheet out and crunching the numbers for a Lloyds Banking Group rights issue and coming up with the answer that this all makes marvellous sense.
At one blow the bank which made the mistake of buying HBOS has boosted its capital ratios to European bank levels and can afford to turn down a big chunk of the very expensive government insurance on offer to cover its most toxic debts.
Hoorah for chief executive Eric Daniels. Hip-hip-hoorah for incoming chairman Sir Win Bischoff. Pantomime boos for outgoing chairman and Gordon Brown's chum Sir Victor Blank.
But there's a huge gap between spreadsheet theory and reality.
The crucial factor is UKFI, holder of the Government's current 43% stake in Lloyds. This could be the first big test of its new chairman Sir David Cooksey. Which way will he swing?
UKFI is very unlikely to underwrite the entire £10-15 billion rights issue not least because that could mean that if other shareholders were to shun the rights issue for whatever reason the government stake would rise far beyond the 60% it will hit under the present Asset Protection Scheme deal.
UKFI could underwrite just its present share of any rights issue ensuring that its stake remains at 43%. It could even allow other shareholders to buy extra rights from it which would reduce the taxpayer stake.
However, that would mean Lloyds having to underwrite the other 57% of the issue which will not come cheap. Add in writing to the 2 million-plus shareholders who came to Lloyds courtesy of Halifax and the cost of raising £15 billion could well nudge £1 billion. That's pricey.
Also don't forget that first HBOS and then Lloyds have effectively each held separate £4 billion rights issues in the past 14 months. The market appetite for yet more shares is far from convincing as today's 5% price drop showed.
Bischoff may have one of the best contacts books in the City but currently he looks as though he is merely flying a very small kite.
