Shares say it - this is a great deal for the bank

Put simply, Royal Bank of Scotland chief executive Stephen Hester has screwed an immensely good deal out of the Government.

From RBS's point of view, it is paying £6.5 billion to insure £325 billion of rotten assets. That's a fee of just 2% which is virtually half what analysts had expected it be charged, is less than the US banks are paying in similar circumstances and, to cap it all, is being paid in shares that may or may not have a value.

There were hardball negotiations at the Treasury last night, and they will have continued as Lloyds moved into the meeting rooms today.

The guarantee scheme is much larger than the City had been expecting, and the quid pro quo for that is that RBS has agreed to lend far more money (£25 billion for each of the next two years) to homeowners and businesses. The Government is betting on this - along with an extra £14 billion of lending by Northern Rock - being enough to start thawing the frozen credit markets. We'll see.

But analysts are saying the Treasury - in other words, the taxpayer - could end up paying an awfully high price. The £325 billion of toxic assets is a catholic collection. It embraces corporate loans, property loans including residential mortgages, structured credit assets and a pile of collateralised debt obligations.

Some analysts fear up to half of it will end up worth nothing. That would leave the Government footing a bill that would make the £33 billion it has already pumped into RBS look like peanuts.

The sums work like this: if 50% of the assets under the guarantee scheme, which are currently valued at £302 billion, turn out to worthless, that is a loss of £151 billion. Under the deal, RBS picks up the first £19.5 billion of those losses on its own, leaving £131.5 million to be shared between the taxpayer and the bank.

Those losses split 90% to Treasury and 10% to the bank, which would leave the Chancellor with a tab for a little over £118 billion.

In other words, the Government would have quadrupled the size of its bailout. It would own 95% of a bank, which would be almost worthless. And we would all be asking why RBS had not been fully nationalised in the first place.