Lloyds Shares Plunge After Share Issue Reports with Reuters

Lloyds Banking Group's shares fell 4 percent Monday, dragging down the FTSE, after reports in the UK press that it was considering a share issue to try and loosen the government's grip.

A Lloyds spokesperson contacted by CNBC refused to comment on the reports.

The bank, which merged with crisis-hit HBOS last week, may consider a multi-billion pound share issue as part of a partial withdrawal from the government's asset protection scheme, the Sunday Times reported.

Chief executive Eric Daniels is reported to think that the fees attached to the taxpayer-backed insurance policy are too high, and give too much control to the government it added.

Sharon Lorimer

Following the group's results on Wednesday, industry sources said Lloyds may consider launching a rights issue to scale back its involvement in the scheme but the speculation was vague and had no details.

Analysts agreed that Lloyds may now be in a stronger position to consider alternatives to the scheme following its results.

"Given the overall cost of the APS (15.6 billion pounds insurance premium...) it bears considering whether LBG should look at reducing the extent of its participation in the scheme," said analysts at Deutsche Bank.

Lloyds said in a statement that it is "working with the treasury to finalise the detailed terms of our intended participation in the asset protection scheme".

"We expect to conclude these discussions and agree terms that are in the best interest of our shareholders," the group added in an email.