Goldman Sachs Group Inc was involved as an underwriter and an investor in Lloyds Banking Group Plc's 23.5 billion pound (US$36.1 billion) refinancing in late 2009, the Financial Times said on Thursday, citing four people involved in the capital raising.

Goldman demanded last-minute changes to the structure of the transaction, the newspaper said, citing the people. This had the effect of benefiting Goldman's position as a bond investor, the newspaper said.

Bankers at Goldman say the company's ethical walls bar underwriters from knowing how its proprietary traders invest, the newspaper said.

Goldman was hit last Friday with a U.S. Securities and Exchange Commission civil fraud lawsuit.

The British government owns 41 percent of Lloyds, the newspaper said.

Citing people involved in the Lloyds refinancing, the newspaper said Goldman disagreed with a consensus of other banks on the amount of extra interest to be payable on bonds that were to be exchanged for new ones.

It also said Goldman was involved in discussions about which bonds should be prioritized for the exchange offer, and cited four people close to the deal in saying Goldman was a large investor in a 6.9 percent bond that was top-ranked.

The newspaper quoted Goldman bankers as saying on Thursday night that its proprietary position was not substantial. It also said Goldman bankers said the bank's role as dealer manager was subservient to senior advisers.

Lloyds said in an e-mail: Terms and pricing are always subject to review until an announcement has been made. The final decision on the terms and pricing of this offer was made by the group following the recommendation of the syndicate, and not any one individual bank.

A call to Goldman was not returned.

(1 pound = US$1.535)

(Reporting by Jonathan Stempel; editing by Carol Bishopric)

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