Lloyds Banking Group has offered to exchange £4.9bn of its outstanding bonds in order to raise new capital.
The part-nationalised lender will offer investors in its Tier 2 securities the chance to swap their holdings for new bonds at a discount to face value of as much as 30%, the Telegraph reports.
This transaction will contribute about 20% of the bank's funding needs for next year, according to Lloyds.
By exchanging Tier 2 notes, banks dispose of securities that will start to lose their value as capital notes under new European rules from 2013. Lenders also get a boost to their capital against losses by swapping the debt at a discount.
Lloyds said: "This decision has been taken in light of ongoing market volatility and regulatory uncertainty, and as a consequence of the effects of a prohibition on capital calls which was imposed on the group as part of the restructuring plan mandated by the European Commission."
The move comes just days after the ABI formed a committee to challenge the terms of Santander's €6.8bn (£5.8bn) offer to swap new, more senior debt for its lower Tier 2 bonds, the Telegraph reports.
Analysts at Societe Generale said they saw "no point" in the Santander deal and the terms of the exchange, which could realise a €640m Tier 1 capital gain for the bank, were not "compelling".
The Lloyds offer closes on December 9 and will include notes in sterling, euros and US, Australian and Canadian dollars.
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