October 28, 2009 / 12:01 PM / 8 years ago

Lloyds short selling interest spikes again

LONDON, Oct 28 (Reuters) - Stock-lending in Lloyds Banking Group (LLOY.L) has risen sharply in the last week as the market prepares for a bout of arbitrage around the bank’s expected bumper rights issue.

Stock-lending, an often-used indicator of short-selling, has risen to 6.85 percent of the market capitalisation on Monday, according to data from research firm Data Explorers.

That compares with 4.42 percent a week earlier and just 1.34 percent at the begining of the month.

There have been low volumes in Lloyds shares recently, a spokesman for Data Explorers said, indicating limited short-selling. Instead, traders might be stocking up ahead of any possible price swings around the rights issue.

Further pressure on Lloyds has emerged following news that Dutch bancassurer ING ING.AS would split into two units, repay some of its Dutch state aid early and launch a big rights issue as part of restructuring talks with the EU. [ID:nLQ54845]

    Lloyds itself is 43-percent owned by the state after a taxper-funded bailout secured as it reeled from the impact of the credit crisis.

    The bank is facing a crunch week over its plans to plug a 20 billion pound hole in its capital before Christmas, with a key decision resting with UK regulators, sources familiar with the situation told Reuters.

    It hoped regulators would decide this week to allow it to drop out of the UK government’s planned asset protection scheme to insure the partly nationalised banks’ toxic assets, thereby opening the way to launching a massive rights issue. (Editing by Greg Mahlich)

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