Thanks for the lift guys, we’ll hop off here. It is understandable that Lloyds Banking Group, the state-rescued lender, might dream of raising fresh equity to cut the fee it must pay the UK government for insuring £260bn of bad loans under the asset protection scheme.

After all, the bank must pay a first loss of £25bn on the portfolio and, in effect, an insurance premium of almost £16bn to shift 90 per cent of the loans’ risk on to taxpayers. Emboldened by its own assessment of its bad debts – Eric Daniels, Lloyds chief executive, said last week he believed the worst was behind it– if Lloyds were to raise fresh equity it could get away with shoving fewer assets into the scheme, lowering its costs.

It is far from clear, however, that there would be shareholder appetite for a cash call before the long-awaited details of the APS are finalised.

Investors indicated as much on Monday, marking the bank’s shares down 4 per cent. And why would the government, which owns 43 per cent of Lloyds, cough up for a capital raising designed to cut the fees it is due to receive? The very point of the APS was to avoid such a direct recapitalisation.

Nor should Lloyds, which has benefited from de facto protection since the APS was announced in March, cut and run without paying for the cover provided so far. After all, regulatory capital relief as part of its APS participation helped Lloyds pass the Financial Services Authority’s stress test.

Analysts estimate that Lloyds would need to raise the equivalent of £15bn-£20bn of capital to avoid the APS entirely.

If the bank seriously believes it can dwarf HSBC’s record-setting $17.8bn rights issue – or that the government will stand back and let it – it should think again.

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