LONDON - A clawback of British government-held shares in Lloyds Banking Group by private investors due to a share price differential could cut the amount of taxpayers' cash the bank will need, Treasury minister Paul Myners said on Tuesday.

There's a real possibility that the conversion of the Lloyds Bank Group preference shares into ordinary shares... will see that clawback exercised because there is now a big difference between the clawback price and the current share price of Lloyds Bank group, he told a House of Lords select committee.

So that would be a first stage in returning some of the value of the company to private investors with the taxpayer receiving a payment in exchange.

The process could start earlier than some people imagined.

Lloyds shareholders are being offered the opportunity to buy up to 4 billion pounds ($5.73 billion) of shares at 38.43 pence each. The government will buy any shares not taken under the terms of a deal struck this month to insure 260 billion pounds of risky assets.

Shares in Lloyds closed on Tuesday at 70.7 pence, making it more likely investors will take up the option of buying the cut-price shares and reducing how much the government needs to pump into the bank.

The government has a 43 percent stake in the bank, which will rise to 65 percent if shareholders do not take up the offer and ultimately to 77 percent if the 'B' shares are converted to ordinary shares.

Myners told the all-party group that the government had an exit strategy for its bank shareholdings, but would not give a time frame.

We envisage that the government will exit its investment in Royal Bank of Scotland and Lloyds Banking group progressively as and when it makes sense from a value perspective and is consistent with financial stability and in the best interests of those banks.

It is very difficult to speculate given that it depends upon the health of the banks. Are they fully recovered? Are they credible as sustainable and profitable institutions and does the appetite exist on the part of institutional investors to buy and is the investment banking community innovative in a responsible way in coming up with clever ways of selling. ($1=.6981 Pound) (Reporting by Frank Prenesti and Steve Slater; Editing by Hans Peters)

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