Sept. 4 (Bloomberg) -- Lloyds Banking Group Plc investors may not support potential plans to raise 10 billion pounds ($16 billion) through a share sale and to reduce the risky assets it insures with the government, according to Andreas Mavrikakis, an analyst at ING Groep NV.

“Lloyds’ management declared itself surprised at the rate of deterioration” in the HBOS Plc corporate loan book which the bank acquired in January, wrote Mavrikakis in a note to investors today. That may be repeated with the HBOS consumer loan book, he added.

“There may be insufficient appetite to buy 10 billion pounds of stock,” wrote Mavrikakis who has a “hold” rating on Lloyds.

London-based Lloyds, 43 percent-owned by the government, may be forced by the European Union to sell assets to gain approval for state aid after the government’s 17 billion-pound bailout last year. It also agreed to insure 260 billion pounds of risky loans. A share sale would also help reduce the British government’s potential holding in the stock, the analyst said.

Lloyds may raise capital at 55 pence a share, based on stock offerings prices over the past 18 months, wrote Mavrikakis. That would amount to a discount of about 46 percent to its 101.78 pence share price. The share sale would reduce the government’s potential holding in Lloyds to 50 percent, from 62 percent under the current Asset Protection Scheme.

‘Depends on Demand’

The bank would “obviously like to” raise the extra capital “but it depends on demand” among investors, said Dave Bradbury, who helps manage $6 billion at Canada Life Ltd. and who does not hold Lloyds stock. “It’s not obvious that there’s enough demand, it depends on market sentiment at the time.”

Lloyds may seek to raise 6 billion pounds in a share sale and cut the amount of assets it insures with the government to 130 billion pounds, wrote Jonathan Pierce, an analyst at Credit Suisse Group AG in a note to investors yesterday.

Banks and financial companies have raised more than $1.3 trillion of capital, largely to repair balance sheets, since the financial crisis began, according to Bloomberg data.

To contact the reporter on this story: Jon Menon in London at jmenon1@bloomberg.net

Last Updated: September 4, 2009 11:41 EDT