A financial deal as complex as the Government’s £37 billion bank bailout would normally take weeks of negotiations with armies of lawyers and investment bankers. It would not be thrown together by a handful of sleep-deprived officials and executives over a curry in Downing Street. So it would not be entirely surprising if there were a few loose ends to be tied up. The loosest of these ends appears to be the question of the dividends that banks in receipt of taxpayers’ money will be able to pay their shareholders.

On Monday the position appeared clear. The banks said that they would not be allowed to pay dividends to ordinary investors until they had repaid the money the Government was putting up in return for “preference” shares. These could not be repaid within five years because otherwise they would not be deemed to be part of the permanent capital of the bank. Therefore, banks would not be able to pay dividends for five years.

Bank shares have traditionally been bought largely for their dividends, and many pension funds cannot hold shares that do not pay dividends. So as soon as the announcement came out, investors started selling shares in RBS, Lloyds TSB and HBOS and their prices fell. Officials explained that it would be unacceptable for the Government to put in money, some of which was then paid out to shareholders.

But the Government would like to minimise the amount of money it puts in. The farther the shares in the banks fall the less likely it is that existing investors will take up any of the new ordinary shares they are issuing. More will have to be bought by the Government. It is thus in the Government’s interest to keep the share prices as high as possible at the moment.

Officials now say that if the banks come up with proposals that are more favourable for the taxpayer, so much the better. These could include banks repaying the preference stock before the five years is up and being allowed to restart dividends.

The other possibility is that banks quickly find other investors to buy the preference stock from the Government. How tempting it would be for Gordon Brown, at some politically convenient moment, to sell the shares, declaring he has saved the global financial system and turned a profit. That would be really flash, Gordon.

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