The Treasury and the taxpayer will have a 43.4% stake in the merged Lloyds HBOS group after shareholders shunned the opportunity to buy new shares.
HBOS shareholders only bought up 0.24% of the 7.5 billion shares offered by the bank, while Lloyds TSB investors purchases just 0.5% of shares offered. This means that the government will now have to take up the rest, after it underwrote both rights issues as part of its £17 billion bail-out of the two banks last October.
HBOS had been looking to raise £8.5 billion with shares priced at 113.6p each while Lloyds TSB was hoping to get £4.5 billion with 2.6 billion new shares issued at 173.3p each.
But few shareholders were expected to buy the new shares as the price had fallen below the level at which they were trading on the FTSE 100. On Monday morning HBOS shares were trading around 84p while Lloyds TSB's stood at around 140p.
The Treasury and the British taxpayer will own a 43.4% stake in the combined banks, which will be renamed the Lloyds Banking Group, once the merger is approved later today. The enlarged group will hold a third of all UK current accounts and 28% of mortgages.
Eric Daniels, chief executive of Lloyds TSB, says: "We understand that many existing shareholders did not participate because of the divergence between the offer price and the current market price. We are pleased that the capital raising process has completed and that the new combined group will have a strong financial position."