Can Lloyds Banking Group pull off the largest capital raising in UK corporate history? That it is contemplating such a step illustrates its determination to bypass the government’s bad bank plan. In March it agreed to pay £15.7bn for the right to inject £260bn of decaying loans into the government’s asset protection scheme. Since then, it has been exploring a welter of potentially less expensive alternatives. It is now considering whether it could even opt out of the APS altogether, preferring instead to increase its capital base by about £24bn through a combination of a rights issue, asset sales and balance sheet shrinkage.

The bank’s advisers have started to sound out investors as to their appetite for a £15bn capital raising accompanied by significant asset sales. Since the bank will presumably have to sell assets anyway to satisfy the European Union, reducing the scale of the bank’s participation in the APS this way makes sense. But even if it raised, say, £6bn by selling Scottish Widows and Clerical Medical, that would still leave it with a substantial shortfall – one that could lead it down the road of a capital raising larger than HSBC’s record £12.5bn rights issue.