UPDATE 1-UK seeks 2.5 bln stg APS fee from Lloyds-source - News

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UPDATE 1-UK seeks 2.5 bln stg APS fee from Lloyds-source

By: AFX | 30 Oct 2009 | 10:15 AM ET

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LONDON, Oct 30 (Reuters) - The UK government is seeking a payment of 2.5 billion pounds ($4.14 billion) from Lloyds to allow it to drop out of a planned toxic asset insurance scheme, a source close to talks between the bank and the government said on Friday. The British bank's planned exit from the Asset Protection Scheme depends on it raising sufficient capital from the private sector. "A figure of 2.5 billion pounds would represent a good outcome for the taxpayer if that is what is agreed," the source told Reuters. Lloyds declined to comment. In March Lloyds agreed to pay the government 15.6 billion pounds in shares to insure it against losses on toxic credit-backed assets for five years.

The cash fee for dropping out of the scheme would reflect the implicit insurance the bank has benefited from in the past six months. Analysts had expected the cost of protection already received to be between 1 and 2 billion pounds and shares in Lloyds, which had been up as much as 6.7 percent pared their gains to trade 1.1 percent higher at 87.09 pence by 1334 GMT. Lloyds, Britain's largest retail bank, is 43 percent owned by the government. It is hoping for a decision next week that could allow it to go ahead with a rights issue by the end of the year. ($1=.6041 pounds) (Reporting by Christina Fincher and David Milliken; editing by Simon Jessop, Greg Mahlich) Keywords: BRITAIN LLOYDS/APS (uk.economics@reuters.com +44 207 542 7748; Reuters Messaging christina.fincher.reuters.com@reuters.net) COPYRIGHT Copyright Thomson Reuters 2009. All rights reserved.

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