Lloyds Banking Group is staging the UK’s biggest-ever rights issue

Lloyds Banking Group is staging the UK’s biggest-ever rights issue

Lloyds Banking Group said the economy was over the worst as it unveiled the UK's biggest-ever rights issue.

The firm is raising £13.5 billion from shareholders to avoid the Government's asset protection scheme (APS) as part of a £21 billion fundraising plan.

Chairman Sir Win Bischoff said: "The UK economy is now stabilising although we are far from having a rose-tinted view of prospects."

The improving conditions mean the bank has been able to drum up enough private interest to duck the APS, which would have seen it pay £15.6 billion to insure £260 billion in toxic loans - raising the taxpayer stake to 62%.

The bank still expects to make a loss this year, but said levels of bad debt were down in the second half of this year. It is looking for a stronger trading performance next year and in 2011. Retail bad debts reached £3.3 billion for the first nine months of the year, while its wholesale banking arm has racked up £12.9 billion in impairment charges so far. This is mainly down to the continuing decline in commercial property prices which devastated the HBOS loan book, although Lloyds expects overall bad debt charges to be lower next year.

The firm has also made faster than expected progress on cost savings from its acquisition of HBOS, which forced the combined bank into the arms of the Government. The Lloyds board has come under fire since the deal unfolded with punishing impact on 2.8 million private investors, who will now be asked to stump up for new shares.

Former Lloyds chairman Sir Victor Blank stepped down in September but chief executive Eric Daniels has also been under pressure. Sir Win dismissed suggestions that Mr Daniels should step down, saying: "We believe we have the right team in place to deliver our strategy."

The heavily-discounted rights issue will be accompanied by a debt conversion offer expected to generate £7.5 billion.

The Government will take up its rights as a shareholder in Lloyds to participate in the capital raising, investing £5.7 billion to maintain its stake at 43%.