More warnings for Lloyds Shareholders

The Independent backs my concerns today with this report opening as follows:

Words of caution from Société Générale had little effect on Lloyds TSB, which advanced to 290.25p, up 10.78 per cent, or 28.25p, as the London market awaited a crucial vote on America's $700bn bailout package.

The broker advised investors to "sell" Lloyds, arguing that the proposed acquisition of HBOS, which was up 17.87 per cent, or 30.4p, at 200.5p, will materially stretch the bank's capital ratios.

"We remove the capital benefit of the insurance subsidiaries from our core Tier 1 [capital estimate] and believe that there could be a further £2bn post-tax impairment on HBOS treasury assets. This would result in a core Tier 1 ratio of 4.7 per cent for the combined entity, which implies a £6bn capital shortfall," the broker said. "If we were to assume that this shortfall was addressed through a 45 per cent discounted rights issue, this would equate to an additional 3,910 million shares being issued."