The British government is to take a 43.4% percent stake in the combined Lloyds TSB-HBOS bank after shareholders shunned rights issues by both lenders.
The two banks said on Monday that existing shareholders bought only 0.5% of the new Lloyds shares offered in its rights issue, and 0.24% of the HBOS shares, leaving the government to buy the remainder.
The government agreed to underwrite the two lenders' capital raisings as part of a Stg 37 billion bailout of the UK banking sector in October last year.
The low level of shareholder participation in the Lloyds and HBOS rights issues was expected, as shares in both banks were below the price at which new stock was offered to the market.
Lloyds' takeover of HBOS is expected to complete on 19 January.
The new bank will control a third of all current accounts in Britain and 28% of mortgages there.
The British government already holds a 58% stake in Royal Bank of Scotland after its shareholders spurned a similar government-sponsored rights issue in November.