Lloyds Banking Group starts meeting investors on Monday to garner support for its plan to insure £260 billion ($370 billion) of risky assets with the UK government, which further dilutes shareholders and sent its shares tumbling. The deal, announced on Saturday, will give Britain a stake of up to 77 percent in the bank. By 0815 GMT Lloyds shares were down 9.5 percent at 38 pence, as analysts welcomed the news of the risk protection but said it is more dilutive than expected and relatively expensive. “The guaranteed asset protection scheme looks to be very thorough, in terms of virtually eliminating the risk of full nationalisation... but also in terms of diluting the existing shareholders,” said Bruno Paulson, analyst at Bernstein. Lloyds will give Britain £15.6 billion in non-voting ‘B' shares in return for state-funded insurance against further losses on the assets. The bank will also be responsible for the first 25 billion pounds of any losses, with the state bearing 90 percent of any subsequent loss. Lloyds followed Royal Bank of Scotland in putting billions of pounds of risky assets into the asset protection scheme as policymakers give unprecedented support to try to get lending flowing again and restore confidence in the battered banking sector. The plan will limit losses banks could suffer if the economy continues to deteriorate and more loans sour. It will massively reduce the risks Lloyds carries on its books and lift the bank's core tier 1 capital ratio to 14.5 percent from 6.4 percent, which will be welcomed by investors. “The risk reduction is fairly extensive and makes it tough to see Lloyds requiring any further government help,” Paulson said in a note. But he said the accompanying dilution limits the upside for shareholders. The government's stake in Lloyds will rise to 65 percent from 43 percent if shareholders do not take up an offer to buy £4 billion of shares currently held by the government.
