(Updates with EBA statement in third paragraph.)
Dec. 12 (Bloomberg) -- Lloyds Banking Group Plc, which is 41 percent owned by the British taxpayer, is issuing new bonds with a face value of $3.2 billion as part of an exchange of subordinated debt that will help it boost capital.
The lender is buying back $4.1 billion of so-called Tier 2 bonds in euros, pounds and U.S. and Canadian dollars callable in 2011 and 2012 at a discount of as much as 30 percent of face value, London-based Lloyds said in a statement today. The new Tier 2 notes will have optional redemption dates in 2016.
Regulators are pushing banks to increase their capital, or ability to absorb losses, before taxpayers have to step in. Lenders in the European Union must raise 114.7 billion euros in fresh capital as part of measures to respond to the sovereign- debt turmoil that is roiling euro region nations, the European Banking Authority in London said on Dec. 9.
By exchanging Tier 2 notes, banks are disposing of bonds that will begin to lose their value as capital notes from 2013 under new rules. Lloyds joins European lenders including BNP Paribas SA and Banco Santander SA in exchanging capital securities for new debt.
Banks divide debt capital into tiers, depending on the ability of the bonds to absorb losses. The most junior is Tier 1, which includes equity and retained earnings, while Tier 2 includes more senior securities that are used if an institution becomes insolvent.
Lloyds plans to make an announcement about Australian dollar-denominated notes tomorrow.
--With assistance from John Glover and Gavin Finch in London. Editors: Andrew Reierson, Michael Shanahan
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