Lloyds under pressure to offload £7bn Scottish Widows

Lloyds is coming under pressure from shareholders to sell Scottish Widows, which could fetch the banking giant about £7bn.

Investors argue it will become more expensive for Lloyds, which is 40%-owned by the taxpayer, to own Widows when new Basel III rules are introduced, The Guardian reports.

Under the new regime to be implemented in 2012/13, banks will be not be able to count capital in their insurance subsidiaries as "common capital" that can also be deployed to cover their mainstream banking operations.

Several shareholders believe selling Widows would ensure Lloyds avoids the build-up of pressure for banks to hold more capital to prevent a repeat of the banking crisis of 2008.

Lloyds Core Tier 1 ratio was 8.1% at the end of last year, but Matrix Sercurities fears it could fall to 6.8% under Basel III in 2012, below the industry average.

Lloyds regards Scottish Widows as "a core business", but insiders admit if Basel III is too stringent, it could reconsider its position. The bank hopes for a phased implementation of the proposed rules to reduce the impact.

While Clive Cowdery's Resolution acquisition vehicle is a possible buyer, cash-rich overseas groups such as China's Ping An are also hovering.

Analysts believe Widows may be "too big a bite" for Resolution, the paper says. Lloyds paid £7bn for Widows in 1999. The insurer made £600m profit last year and is valued in Lloyds' books at £10bn.