UK bank Lloyds' army of small investors grilled executives for over three hours on Thursday over secret central bank loans and mistakes made during the crisis, but agreed to back a record-breaking rights issue.

Britain's largest retail bank won the backing of virtually all its investors for a 13.5 billion pound ($22.5 billion) cash call, but had to defend itself against anger over billions of pounds in central bank support for HBOS, kept secret from shareholders at the time of its rescue by Lloyds .

They still argue the deal they did will add value, but to get back to the sort of returns that enabled the group to pay 30p a share in dividends is going to require a minor miracle, said Douglas Moffatt, a shareholder and retired journalist.

This was an occasion to vent small shareholder spleen.

Lloyds said at a busy meeting of shareholders in the central England city of Birmingham that it had a modest exposure to Dubai World, the company at the center of worries about debt problems in Dubai, but said it did not represent a material threat. Lloyds and other European bank stocks were hit on Thursday by concerns about loan exposures.

Lloyds, 43 percent state-owned, said 99.75 percent of shareholders who voted approved the rights issue, part of a 22.5 billion pound capital raising effort to avoid a state-backed insurance scheme for bad debts.

But many of the more than 500 shareholders gathered on Thursday said they still had mixed feelings about the rights issue -- backed in advance by the UK government -- and over the bank's merger with the crisis-battered HBOS.

My feeling is we've got to go along with (the rights issue). If we remain in the government scheme, it is even worse, said Ralph Newnes, a shareholder from Birmingham.

SECRET LOANS

Lloyds, which has more retail investors than any other British company after its takeover of HBOS in January, met shareholders just days after the Bank of England said it secretly lent HBOS and Royal Bank of Scotland almost 62 billion pounds as the financial crisis raged last year.

The news has enraged politicians, who accused Lloyds on Wednesday of selling investors a lemon.

And it angered small shareholders, many of whom challenged the bank's view that it had disclosed enough facts and did not create a false market.

Chief Executive Eric Daniels and Chairman Win Bischoff both said the Bank of England had chosen not to disclose the support.

But they declined to say whether Lloyds itself would have been able to reveal the loans received by HBOS, dismissing suggestions that, without being able to provide full clarity for their shareholders, they should have walked away.

Daniels, who has said he has no plans to step down from the helm, said there had been no mystery in HBOS's support.

We gave full disclosure. There was no desire to obscure. The investors had every piece of information necessary to make an informed decision, he told reporters after the meeting.

Lloyds this month said it wanted to sidestep a government insurance scheme for toxic loans and would instead turn to investors to repair a balance sheet badly depleted by HBOS.

Crucially, with your approval and capital markets support (this opportunity) will allow us to shape our own future, Bischoff told shareholders, adding the rights issue was a more attractive option as Britain's economy begins to stabilize.

Lloyds has 2.8 million small investors and many of those who gathered at Birmingham's NEC arena will already have been tapped for cash in the past 18 months.

Lloyds asked shareholders for 4 billion pounds earlier this year, and beleaguered HBOS scrambled together a separate 4 billion last year in one of the biggest fund-raising flops in UK corporate history.

In addition to the rights issue Lloyds is raising 9 billion pounds from a debt exchange.

The rights issue was priced earlier this week at 37 pence per share, with investors being offered 1.34 shares for every existing share held.

The approval from shareholders removed a final cloud of uncertainty hanging over Lloyds after months of debate over EU competition authorities and toxic loans.

(Additional reporting by Steve Slater in London; Editing by Elaine Hardcastle, Andrew Callus, John Stonestreet)

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