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The taxpayer has moved closer to owning almost 44% of the new "Bank for Britain" that will be created by the takeover of HBOS by Lloyds TSB after the £13bn fundraising by the two banks closed this morning.
At 11am, the last moment for shareholders in either bank to support the cash calls, the taxpayer was also facing a £3.5bn loss because shares in the two banks were changing hands below the price at which the government was expected to buy them.
Lloyds TSB's shares were trading at 133.2p, below the 173.7p at which its £4.5bn rights issue was being priced. HBOS was trading at 79p, below the 113.6p at which the troubled bank was raising £8.5bn.
At these prices, there is little incentive for shareholders in either bank to buy the new shares because it is cheaper for them to buy them on the stockmarket. The actual acceptance rate will be announced on Monday.
The emergency takeover of HBOS, which was brokered by Gordon Brown in September at the height of the banking crisis, is expected to be completed next Friday and shares in the new Lloyds banking group begin trading on 19 January.
The combined bank will have large market shares in mortgages, savings and current accounts that would ordinarily have prompted a full blown competition investigation. But the deal was given special clearance to allow HBOS to be rescued.
No HBOS executives are to join the board of the new bank, which is yet to tell its combined 140,000 staff of the scale of job cuts needed to save £1.5bn a year by 2011. Eric Daniels, the Lloyds TSB chief executive who will hold the same role in the enlarged bank, has dismissed rumours that as many as 40,000 roles are under threat.
Branches of the combined 3,000 network of the two banks are also expected to be cut.
Analysts at Exane BNP Paribas said: "At first sight, the combination of Lloyds TSB and HBOS looks like a recipe for disaster - 95% of earnings will come from the UK, with an unenviable number one market share in all the things that investors are currently most afraid of: mortgages, unsecured loans, credit cards and commercial property."
But they note they are more optimistic because the planned cost savings "offer a rare assurance in a very uncertain world".
"Counterintuitively, Lloyds Banking Group is a defensive play," the Exane BNP Paribas analysts James Eden and Ian Gordon said.
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