'Rework bailout' boosts bank shares

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Royal Bank of Scotland and merger partners Lloyds TSB and Halifax Bank of Scotland have seen their shares continue to slide after the rescue deal was announced.

The scheme allows the banks to receive billions of pounds of emergency capital but bars them from paying out dividends to ordinary shareholders until hefty Government stakes are repaid.

But after reports that the banks' executives were pressing ministers to rethink the scheme to make it more attractive to shareholders, Lloyds TSB and HBOS rose 7% and 4% respectively. RBS was nearly 2% higher.

Under the deal's terms, the three banks are prevented from paying out dividends to ordinary shareholders until they have fully repaid £9 billion of preference shares being issued to the Government. That appears to have been a major turn-off for investors, many of who rely on dividend income.

According to the Financial Times, the banks' bosses are asking the Government to allow them to quickly redeem the preference shares either by raising other finance or selling assets.

Ministers have so far stressed that the banks signed up to the deal voluntarily.

The Treasury said: "The recapitalisation package the Chancellor announced following agreement with the banks will put banks on a stronger footing and help to stabilise the banking system, making it more resilient in the future.

"The details were set out clearly by both the Government and the individual banks."

The Government could end up owning about 60% of RBS under the terms of the bail-out, and 43.5% of the merged Lloyds TSB-HBOS bank. At the market close on Tuesday, the taxpayers' paper loss on the former's potential stake was about £100 million, while the latter's was about £2.5 billion.