Lloyds completed a record 13.5 billion pound ($21.9 billion) rights issue on Monday, ending a turbulent period for the bank and shifting investor focus to a potential government stake sale in 2010.

The discounted cash call -- the world's largest to date -- is a key plank of a bumper capital raising effort worth over 23 billion pounds in total and aimed at helping Britain's largest retail bank avoid a state-backed scheme for bad debts.

Lloyds Banking Group said on Monday 95.3 percent of the new shares offered were taken up by investors including the British government, which owns around 43 percent of the bank.

That left just over 600 million pounds of shares to be placed by the underwriters -- Bank of America Merrill Lynch, UBS and Citigroup -- far better than Lloyds's 4 billion pound sale in June, which left a unwanted shares amounting to 13.1 percent.

The rump was sold within hours at 55.5 pence per share, an 18.5 pence premium to the rights issue price. The sale will raise some 18.4 pence per share for investors who did not take up their rights, an average of 180 pounds each, the bank said.

A high take-up -- with the rump placed by 1000 GMT (5 a.m. EST) -- was the strongest indication yet of shareholder support for Lloyds's turnaround effort and of appetite for its shares.

I take it as a good sign. Over 95 percent feels quite good to me, analyst Mike Trippitt at Oriel Securities said.

This has drawn a line under the capital issue -- they have a solid capital position, a strong balance sheet. The spotlight now will be on the operating performance.

Lloyds shares closed down 1.9 percent at 55.2 pence in a relatively strong market, held back by the placing of outstanding shares.

The price had opened up over 3 percent, as investors were cheered by the take-up and by Abu Dhabi's $10 billion bailout for Dubai, where Lloyds is a creditor.

Analysts and investors said clarity on the bank's capital and a focus on its operational progress would also make it easier for the government -- which has bought into Lloyds at an average price of 122.6 pence per share -- to begin considering selling down its share as early as the start of next year.

What we have seen today is there is appetite for the equity, so it would be smart for a variety of reasons for the government to begin to place a small amount of its stake in the first quarter of 2010, analyst Joe Dickerson at Execution said.

UK Financial Investments, which manages government stakes in nationalized or bailed-out banks, is expected to test appetite for its shares soon. But it is unclear whether a sale could come before a general election due by June -- particularly if shares remain well below the government's average purchase price.

The paper loss facing the British government contrasts sharply other countries. The U.S. government, which plans to begin selling the roughly $30 billion of Citigroup shares it owns as the bank raises $17 billion in stock to repay bailout funds, could see a profit of $13-$14 billion.


Lloyds, which has 2.8 million small shareholders accounting for 7 percent of its equity before the rights issue, has faced anger over mistakes made during the crisis and a decision to buy embattled rival HBOS -- heightened by revelations that the Bank of England had secretly lent HBOS 25 billion pounds to keep it afloat at the height of the crunch.

Lloyds shareholders have seen their stock losing 76 percent of its value since January last year -- before the crisis and the takeover of HBOS a year later.

But investors voted overwhelmingly last month to back its capital-raising plan, which includes a debt exchange into so-called contingent capital, and totals over 23 billion pounds after an increase announced on Friday.

The new bonds, dubbed cocos, are designed to convert into equity if Lloyds's core Tier 1 capital ratio falls below 5 percent, shoring up its position if it hits rocky times.

($1 = 0.6161 pound)

(Editing by David Cowell)