By Myles Neligan and Raji Menon
LONDON (Reuters UK) - Lloyds Banking Group (LLOY) could launch one of the world's largest cash calls as early as next week after talking to shareholders on Friday to gauge their appetite for the fundraising.
The part-nationalised lender approached its shareholders on Thursday, investor sources said, with little time left to get a rights issue of at least 12 billion pounds done before the Christmas holiday.
Lloyds will launch its ambitious plan as soon as it gets approval from the government and regulators. Two sources close to the matter said a deal could come as early as Tuesday.
One top-ten investor said the participation and scrutiny of the government, which owns a 43 percent stake in the country's largest retail bank, would make it more likely the fundraising would succeed.
"The government is putting its hand in its pocket, so there is a high degree of testing by interested parties who wouldn't want egg on their face," the investor said, speaking on condition of anonymity.
Lloyds inched closer to filling a capital gap of at least 21 billion pounds this week, saying it was in "advanced discussions" with regulators to stay out of a government-backed scheme to insure bad debts.
Lloyds declined to comment on the timing of any deal.
BREAK FEE
The government is seeking a payment of 2.5 billion pounds from the bank to allow it to exit the asset protection scheme, a source close to talks between the bank and the government told Reuters on Friday.
Analysts had expected the cost of protection already received to be between 1 and 2 billion pounds and shares in Lloyds, which had been up as much as 6.7 percent, were flat at 85.92 pence by 2:45 p.m. British time.
Lloyds is close to a deal with Brussels under which it would sell Lloyds TSB Scotland, its Cheltenham & Gloucester branch network, and internet banking unit Intelligent Finance, two sources familiar with the matter said on Friday.
"It's a clear story now: The Commission won't require as much in the way of disposals as feared," a banking analyst said, speaking on the condition of anonymity.
The EU-mandated break-up of Dutch bancassurer ING earlier this week stirred fears that Lloyds might be forced to dispose of its much bigger Halifax mortgage business, triggering a steep fall in its share price.
Several sources have said the bank will raise at least 12 billion pounds in a rights issue, and one person familiar with the matter said on Friday it will seek to raise about 13.5 billion pounds in the offer. About 7 billion pounds will be raised in so-called "contingent capital."
The share sale would have to be priced at a discount of at least 40 percent, given the amount of capital being raised and uncertainties over the bank's future prospects, analysts said.
"What I'm hearing is it will be at least 40 percent," said one analyst who asked not to be named.
"It would have to be a big discount for such a huge amount of capital, and given all the uncertainty around it. So I think 40 is a reasonable number, it might be a bit more than that."
In all, the bank is looking to plug a capital gap of more than 20 billion pounds using the rights issue, fresh hybrid capital and a convertible bond.
(Additional reporting by Victoria Howley, Clara Ferreira-Marques and Steve Slater; editing by John Stonestreet and Erica Billingham)
