BRITISH PRIME minister Gordon Brown yesterday gave a vote of confidence to the two Lloyds bank chiefs who helped him rescue HBOS in the face of a furious backlash by investors over a deal that drove the merged British bank into the hands of the government.

Sir Victor Blank, chairman of Lloyds Banking Group, and Eric Daniels, chief executive, face calls for their resignation after they finally agreed a second treasury bailout that gives UK taxpayers a 65 per cent voting stake in the bank. The government’s economic stake could be up to 77 per cent.

But yesterday, Mr Brown made it clear he wants Sir Victor and Mr Daniels to steer the bank through the recession, with officials insisting the merged bank could make a relatively quick return to profit. The UK increased its stake in Lloyds over the weekend to 65 per cent in return for insuring £260 billion ($366 billion) of toxic assets.

Mr Brown’s team point out it would not be insuring Lloyds’ assets if it had no faith in the management, nor does Mr Brown expect either man to quit voluntarily. “When we rescued RBS last year, we removed the chief executive and chairman,” said a government official. “That is not happening at Lloyds.”

RBS two weeks ago put £325 billion of assets into the UK’s asset insurance scheme under which the government could end up with an economic stake of up to 95 per cent. Sir Victor and Mr Daniels have a credibility problem with private shareholders after repeatedly playing down the significance of taxpayer involvement in the bank and fighting last week to keep the government’s stake below 50 per cent.

In addition to the taxpayer’s 65 per cent voting stake, Lloyds has paid its £15.6 billion insurance fee on its toxic assets in non-voting but dividend-paying B shares, raising the taxpayer’s economic stake to 77 per cent.

As part of the deal, the government has secured additional lending commitments by Lloyds of £14 billion for each of the next two years, and the company has complied with new guidelines on pay and bonuses for top staff.

The UK Shareholders' Association, which represents private shareholders, will consider several measures including legal action against Lloyds. It said the agreement was not in investors' interests. – ( Financial Timesservice)