LLOYDS Banking Group today warned that it still had to receive approval from the European Commission for all aid being offered to it by the Government.
The bank, formed from Lloyds TSB's rescue of Edinburgh-based HBOS, still has to submit a detailed forward plan with the Treasury to the European Commission.
In a prospectus sent to shareholders today following Monday's offer of £4 billion of cut-p
rice shares, the company admitted that it expected to have to drastically reduce the size of its balance sheet and sell "non-core" businesses as part of the plan.
But it also admitted it may have to sell some "core" businesses.
Lloyds is currently working with the Treasury to formally notify the Commission of the terms of the asset protection scheme, which must be cleared by regulators to ensure compliance with European state aid rules.
If cleared, the Commission will then consider the specific deals agreed with both Lloyds and Royal Bank of Scotland and whether the restructuring plans meet European Union legal requirements.
It has yet to clear any of the banking bailout schemes by EU nations, although it is currently considering all of them.
In the letter sent to shareholders today, outgoing chairman Sir Victor Blank said that approval was needed in relation to the placing and open offer of last November, the group's intended participation in the asset protection scheme and "the various elements of state aid that it has received since it announced its acquisition of HBOS.
A single forward plan is expected to be submitted by Lloyds and the Treasury for the asset protection scheme and all other state aid.
"It is currently uncertain whether such state aid approval will be forthcoming and, if forthcoming, on what terms it will be granted, but the group expects to agree a forward plan involving the cessation or disposal of certain parts of the business," said Sir Victor.
"The terms of such forward plan are likely in particular to include the obligation to reduce significantly the size of the group's balance sheet and/or behavioural restrictions.
"The group expects such reduction in the balance sheet to be achieved through making divestments of exiting non-core businesses. However, a reduction could require the group to divest or exit core businesses."
Monday's announcement on cut-price shares was an attempt to raise £4bn in order to repay the Government's stake of preference shares.
The redemption of the Treasury's preference shares will remove the £480m annual cost of dividends payable, improving the group's profitability.
The Government has fully underwritten the open offer, meaning it will buy any of the new ordinary shares not snapped up by investors. That means its stake in Lloyds could rise from the current 43.4 per cent to up to 65 per cent.
