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City investors reacted cautiously today to Lloyds Banking Group's new plans to raise £25 billion.
It would raise this huge amount through a £15 billion new share issue, Britain's biggest ever rights issue, and the sell-off of some of its non-core assets like insurance arm Scottish Widows.
The plans, put together by Lloyds' new chairman Sir Win Bischoff and chief executive Eric Daniels, have been shown to the Financial Services Authority and are likely to go before Chancellor Alistair Darling in the next few days.
Lloyds is keen to avoid joining the Government's asset protection scheme, which would cost it a £15.6 billion fee to insure £260 billion of toxic debt and see the taxpayers' stake rise to 60%.
Last month Lloyds said it was looking at changing its participation in the asset protection scheme, which was created at the height of the financial crisis and is now seen as expensive.
It was then looking at raising up to £20 billion, which the FSA said was not enough.
Avoiding the asset protection scheme would also place Lloyds in a better light with the European Commission, which has still to rule on the amount of state aid to be given to Lloyds and Royal Bank of Scotland.
RBS, which is 70% state owned, is unlikely to opt out of the asset protection scheme but is reported to be looking at raising some £4 billion through a rights issue in order to reduce its participation.
It originally said it would pay £20 billion for £325 billion of insurance.
