The British government will own 43% of the merged banking group formed by Lloyds TSB and HBOS after private investors shunned a new share issue by the crisis-hit lenders, they said today.
The news came as a court in Edinburgh rubber-stamped the merger after a legal hearing.
HBOS and Lloyds TSB, which will form banking giant Lloyds Banking Group, said that their shareholders had snubbed their multi-billion-pound rights issues, meaning the government had stepped in to buy the shares.
'As with the Lloyds TSB placing, HM Treasury will acquire the remaining HBOS shares for which valid acceptances have not been received from HBOS shareholders,' the two banks said in a statement.
'As a result it is expected that on completion of the proposed acquisition of HBOS, HM Treasury will own approximately 43.4% of the enlarged issued ordinary share capital of the newly named Lloyds Banking Group as at 19 January 2008,' the statement added.
In addition, the British government has also invested an extra £4 billion in the two banks in return for preference shares.
In November, a similar failed recapitalisation led the British government to take an almost 60% stake in stricken Royal Bank of Scotland.
Lloyds TSB agreed last year to buy HBOS in a deal worth £9.8 billion after its target was left facing collapse owing to massive exposure to the US sub-prime mortgage crisis.
Lloyds Banking Group will begin trading next week following an expected court approval in Edinburgh later today. Both HBOS and Lloyds TSB have struggled to raise the new funds from shareholders to boost finances hit by the global credit crunch.
The new share offerings, or rights issues, were mostly snubbed by investors because their actual share prices have slumped dramatically since the plans were announced last October amid the global financial crisis.
The UK government had agreed to guarantee the share issues. HBOS said today that its shareholders agreed to buy just 0.24% of its £8.5 billion rights issue. Lloyds TSB said that its investors had agreed to buy 0.5% of new shares to raise £4.5 billion.
'We are pleased that the capital-raising process has completed and that the new, combined group will have a strong financial position,' said Lloyds TSB chief executive Eric Daniels.
'We understand that many existing shareholders did not participate because of the divergence between the offer price and the current market price,' he added.
Shares in Lloyds TSB gained 7% to 140.5p in London this evening, while HBOS added 5.4% to 84p.
