Lloyds Banking Group has sold its fund management arm Scottish Widows Investment Partnership to Aberdeen Asset Management for £660m as it looks to shore up cash ahead of its planned privatisation.

Lloyds said in a statement that Aberdeen will pay in 9.9% company shares, worth 132 million stocks and £560m (€669m, $903m), as well as stumping up £100m to be paid over five years.

The £100m payment will depend on the performance of a strategic relationship between the two firms whereby Aberdeen will manage assets on behalf of the banking group.

Macquarie, the Australian investment banking group, was initially tipped to make an all-cash offer for SWIP for £497m however today's announcement shows that it was eventually pushed out the race.

SWIP currently has £146bn in funds under management.

Lloyds hired Deutsche Bank in April to advise on the sale of the business, which would help the lender meet regulatory demands to raise more capital.

UK banks are having to consider further disposals after the Bank of England said they must raise extra capital by the end of the year, to be in a position to absorb future loan losses.

Lloyds Gears Up for Privatisation

The UK government will try to raise £3.2bn by selling off 6% of its stake in Lloyds, which had to be bailed out with taxpayer cash at the height of the financial crisis.

It would see the government reduce its stake in Lloyds to 32.7% by selling off some of its shares for 75p each, above the 73.6p paid during the 2008 bailout, to large investors.

There will be no further sale of Lloyds shares by the government for 90 days, said the Treasury and UK Financial Investments (UKFI), the arm which handles state-owned shares in banks.

"We want to get the best value for the taxpayer, maximise support for the economy and restore them to private ownership," said a statement from the Treasury.