Lloyds Optimistic As UK Asset Plan Talks Drag On

Lloyds Banking Group said talks with Britain's government about the terms of a scheme to cap its losses on billions of pounds of risky assets were "advanced and going well", downplaying reports of a rift.

A Treasury spokesman said details of the plan were likely to come in the next few days.

"Our talks with the Treasury are advanced and are going well," a spokesman for the bank said. "They are constructive discussions about what is by definition a complex but nevertheless very important subject."

Lloyds is expected to announce it will put more than 200 billion pounds ($282 billion) of assets into the scheme, aimed at capping the amount banks can lose if asset values fall.

The Daily Telegraph reported on Wednesday the bank had had a major bust up over the terms. The newspaper, quoting individuals close to the bank, said Lloyds chief executive Eric Daniels felt so strongly about the issue he could quit.

"He (Daniels) is very committed to getting the best possible outcome for our shareholders. That is very much his sole focus," the Lloyds spokesman said.

Lloyds had been expected to outline details of its plan last Friday alongside its annual results.

The delay was blamed by Lloyds Chairman Victor Blank on Treasury officials being tired after frantic talks to seal a deal with Royal Bank of Scotland over previous days, but the lack of details this week has prompted worries the talks have run into trouble.

COMPLEX NEGOTIATIONS

"The reality is far more prosaic. These are complex negotiations where there is a great deal of detail to be hammered out. That is what we and the Treasury are discussing," the Lloyds spokesman said.

By 1025 GMT Lloyds shares were up 3.5 percent at 47.1 pence, in line with a firmer European bank sector. Its shares have crashed 62 percent this year and have halved in the past month.

The cost of the so-called asset protection scheme could result in the government's stake in Lloyds rising from 43 percent to well over 50 percent.

Analysts said it was hard to assess the merits of the plan until terms are known, but the threat of more big losses from HBOS's loan book makes the deal crucial.

"It is the key issue for Lloyds. Their ability to insure the tail of the loss risk is what the asset protection represents for them," said Sandy Chen, analyst at Panmure.

Britain's scheme is expected to insure well over 500 billion pounds worth of assets once other banks have signed up.

RBS has put 325 billion pounds of assets into the scheme, but the cost of the insurance -- which amounted to near 10 percent of the assets including the "first loss", the fee and tax allowances given up -- could see Britain's stake rising as high as 95 percent from 70 percent.

Barclays is also considering putting assets into the plan, but it is not expected to enter detailed discussions until the Treasury's talks with Lloyds are concluded.