You can see how this is going to play out:
Alistair Darling is ready to hand over up to £5bn of taxpayers\’ money to the part-nationalised Lloyds Banking Group in order to shore up its finances.
Lloyds, 43% owned by the taxpayer, is seeking £25bn of extra capital so it can escape the multibillion-pound cost of the government\’s toxic asset insurance scheme. Selling new shares worth up to £5bn to the Treasury is part of the complex plan currently being considered by the regulators.
Bastard bankers, gobbling up ever more of our tax money……there will be no prizes for those who see this entirely predictable line.
However, actually what they\’re doing is having a rights issue. If the government wants to keep its current 43% stake then it\’s got to buy some of the new shares. Or, it can keep its money (or our money) in its pocket and see that stake diluted.
That\’s pretty much it. When a company needs new capital then the owners have to put that new capital in. Those owners who don\’t put that new capital in end up owning less of the company than they did before.