Banks bail-out deal in the balance

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Negotiations are under way between the Treasury and executives of RBS and merger partners Lloyds TSB and HBOS over a condition to the deal which would bar the payment of dividends to shareholders until the Government's hefty stake is repaid.

Investor concern over this element of the package is understood to be behind volatility in the banks' share prices over the past few days, amid speculation it may scupper the merger plans of Lloyds TSB and HBOS, which have yet to be approved by shareholders.

Reports that the scheme may be adjusted to make it more attractive to private investors saw sharp rises in the banks' stock early on Wednesday.

And the BBC reported that the Treasury was "clarifying" to the banks that there may be a return to dividend payments after a year's moratorium.

But Chancellor of the Exchequer Alistair Darling denied that the terms of the bail-out were being "rejigged".

"No, they are not," he told BBC2's Newsnight. "We reached an agreement with these banks on Sunday. The banks had the figures then. It was a voluntary agreement.

"If they came through the Bank Reconstruction Fund, there were terms and conditions."

Mr Darling added: "Of course, if somebody comes back with something that is demonstrably better for the taxpayer, then of course I would look at it. But I am not prepared to reopen an agreement reached just a few days ago.

"What we wanted to avoid was a situation where we put billions of pounds into a bank only to see that money go straight back out of the door again to non-Government shareholders."