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The British government has become the majority shareholder in Lloyds Banking Group PLC in exchange for insuring more than 260 billion pounds ($367 billion dollars) in toxic assets, the bank said Saturday.

The deal means the government’s stake in Britain’s third-largest bank will surge from 43.5 percent currently to at least 65 percent and possibly as high as 77 percent.

As a condition for the deal, Lloyds promised to increase lending _ primarily to businesses – by 28 billion pounds ($39 billion) over the next two years.

Eric Daniels, the group’s chief executive, said in a statement that the deal “substantially reduces the risk profile of the group’s balance sheet. Our significantly enhanced capital position will ensure that the group can weather the severest of economic downturns and emerge strongly when the economy recovers.”

The government can convert its nonvoting holding into ordinary shares at a cost of 115 pence – nearly three times the 42 pence closing price on Friday.

If it chose to do this, and took up the full 4 billion pounds conversion of preferential into voting shares, then the taxpayer would own 77 percent of ordinary shares, though Lloyds said that the government had agreed to restrict its voting rights to 75 percent.

The deal puts further pressure on Daniels and chairman Victor Blank, who agreed the ill-fated deal to buy HBOS, which earlier this month reported a full-year loss of 7.5 billion pounds, compared with a profit of 4.05 billion in the previous year. The group’s Lloyds TSB unit reported an 819 million-pound profit.

That deal had already led to a 17-billion pound bailout, which saw the government pick up its current stake, and the bank said that more than 80 percent of the 260 billion pounds to be insured comes from HBOS’ lending books.

Under the asset protection program, banks pay a fee to have bad loans underwritten by the government, giving them more flexibility to lend to individuals and businesses.

Lloyds said its assets covered are expected to include some 74 billion pounds in residential mortgages, 18 billion pounds in unsecured personal loans, and 151 billion pounds in corporate and commercial loans. Lloyds has negotiated a 15.6 billion-pound fee to be paid over seven years. The money will be used by the Treasury to subscribe to the issue in nonvoting “B” shares.

Stephen Timms, the Treasury’s chief secretary, told the BBC there was uncertainty over the true value of the assets, but that he believed the deal would help position Lloyds for the future as a strong financial institution.

He also said the ultimate cost to the taxpayer was unclear.

“What we have seen elsewhere where similar arrangements have been made is that some fraction of the total value of the assets held is ultimately a cost to the taxpayers, but it will be some years before the total cost becomes clear,” Timms said.

Lloyds is the second bank to take part in the government’s asset protection program after Royal Bank of Scotland PLC last month announced it would ask the state to insure 325 billion pounds of risky assets.

Lloyds was forced to turn to the program, which the government hopes will stabilize the country’s shaky banking system, after sustaining heavy losses from its January takeover of HBOS.

When Lloyds rescued HBOS and the government picked up its initial stake, the bank said it did not want the government to take a majority investment, regarding the state as simply another investor. – AP

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World biggest Steel maker ArcelorMittal plans to suspend operations at its Cleveland site in early May amid a declining market for steel and lay off about 700 more workers for an undetermined length of time, a local union official said Saturday.

About 450 of the roughly 1,400 members of the United Steelworkers of America Local 979 already have been laid off in the past three months, Local 979 vice president Dan Boone said.

Union officials and company management informed workers about the new round of layoffs in several meetings Friday, he said, adding that economic conditions had foreshadowed the potential for more cuts. He said many of the workers had been cut during shutdowns by other northeast Ohio steel companies in the past.

“We’ve been through this before, so there was no mass panic, no disruption at the meetings,” Boone said. “For the people who have been through it before, pretty much a here-we-go-again attitude, obviously extreme disappointment.”

An estimated 250 workers would remain at the site to keep up with environmental protection tasks and maintenance of the mill and finishing plant in the city’s Flats area, he said.

The workers of Local 979 are hopeful that provision will boost the steel market and put them back to work, Boone said.

“This was a difficult decision to make, but the company is being forced to respond to the extraordinary economic environment we are facing,” ArcelorMittal said in a statement.

The Cleveland site likely will remain idle until the credit markets open up and there’s an increase in the demand, which began to drop off significantly in the fall, Boone said.

He said steelworkers feel confident that layoffs won’t be permanent and that they have strong support from Gov. Ted Strickland and other Democrats from the region.

Luxembourg-based ArcelorMittal, the world’s largest steel maker, said it is responding to poor market conditions and collapsing demand. The company idled the two blast furnaces in Cleveland in October as it cut worldwide production by 45 percent, and it posted a fourth-quarter loss of $2.6 billion, its first-ever quarterly loss.

U.S. Rep. Dennis Kucinich, a Democrat from Cleveland, released a statement Friday urging Congress to help the steel industry by enforcing the “Buy American” language in the recent federal stimulus package.

- AP

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Automaker pummeled by weakening demand and mounting losses discloses that its auditors have raised serious questions about its future. General Motors Corp. said in a government filing Thursday that its accounting firm has found there is “substantial doubt” about the automaker’s ability to survive.

The embattled automaker made the disclosure in a 480-page filing with the Securities & Exchange Commission. The filing’s grim tone is not a surprise. GM has sustained large and continuing losses that have now reached $82 billion over the last four years. It had previously said it needed additional federal loans, coupled with improved sales, to remain in business. GM said in a separate statement that it is confident it will be able to turn around the business if it gets the federal help it is seeking and when consumer demand for autos returns.

The Obama administration, under the terms of the $13.4 billion in federal loans GM has already received, must determine that the company’s plans make it viable in the long run. The government must determine that GM has a “positive net present value” or else demand repayment of the loans within 30 days – a development that would plunge the company into bankruptcy and quite possibly force it out of business. The government has wide latitude in how it judges the company’s net present value, based on assumptions it makes about future sales, car prices and costs for the company going forward. The administration clearly does not want to force the largest U.S. automaker into bankruptcy.

“The auditor’s opinion has no impact on the aggressive actions we are taking to restructure our business for long-term viability,” GM said. Still, Thursday’s filing presents another hurdle the automaker will have to clear as it makes the case that it deserves additional taxpayer support going forward.

The GM filing disclosed that the Treasury already agreed to waive requirements that the automaker meet certain terms of the original loan agreement, including that it win agreement with creditors to convert two-thirds of its unsecured debt to equity by Feb. 17.

But even if the Obama administration continues to give support to GM and rival Chrysler LLC, which has also received federal loans, Thursday’s filing could create problems in its relations with suppliers and banks. For example, concerns about GM’s future could cause companies that supply it with parts start to demand cash on delivery from the cash-starved automaker, according to GM’s filing.

While parts makers would be reluctant to damage their largest customer with such a demand, they may have no choice because of GM’s filing. Those parts makers’ own auditors and banks could use the doubts raised by GM’s auditors to raise questions about their own future.

GM said Thursday auto sales, which have plunged more than 40% in recent months, must rebound by next year if it is to survive. Meantime, GM also said it needs additional federal loans to stay in business. GM received $13.4 billion so far, and it has asked for up to $16.6 billion more. In addition, it is seeking $7.7 billion in loans to convert production from light trucks to more fuel efficient cars under an Energy Department loan program. And it is also seeking aid from foreign governments for some of its non-U.S. operations.

“The failure to obtain sufficient funding from the U.S. government or governments outside the United States may require us to shrink or terminate operations or seek reorganization for certain subsidiaries outside the United States,” the filing said.

“If we fail to obtain sufficient funding for any reason, we would not be able to continue as a going concern and could potentially be forced to seek relief under the U.S. Bankruptcy Code,” GM added.

Privately held Chrysler does not have to file a year-end financial statement with the SEC. Last week,Ford Motor (F, Fortune 500) said its auditors have not substantial doubt about its future. Ford went into this auto crisis with a much stronger cash position than GM or Chrysler. -CNN

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