The Treasury is preparing to relax an implicit five-year ban on newly nationalised banks paying dividends, in an effort to keep the bailout on track.

Banks asking the Government for £37 billion in rescue finance scented what they saw as a Treasury climbdown last night after day three of the package talks threatened to become mired in confusion.

At the weekend each bank involved in the bailout — Royal Bank of Scotland, Lloyds TSB and HBOS — agreed in signed statements approved by the Treasury to a ban on dividends to shareholders while the taxpayer held a significant stake.

Officials disclosed yesterday, however, that the ban was only irrevocably in force for a year. It could then be lifted if the banks paid back large sums to the Treasury, and if such a move was “in the interests of the taxpayer”.

Senior bankers insisted that the restriction was a climbdown from the Treasury’s unambiguous position in the frantic weekend rescue talks.

Senior officials angrily denied suggestions, however, that the Government was reopening the agreement signed three days ago. Asked on BBC Two’s Newsnight whether the terms of the bailout were being rejigged, Alastair Darling, the Chancellor, said: “No, they are not. We reached an agreement with these banks on Sunday. The banks had the figures then. It was a voluntary agreement.”

Hundreds of millions of pounds of bank shares changed hands in hectic trading yesterday as traders gambled that the Government was about to execute a U-turn. Lloyds shares soared by as much as 12 per cent to 169p on speculation that the Government was about to capitulate. Lloyds has been a generous dividend payer and had been particularly hard hit by the prohibition. However, the shares ended the day down 1.1p to 150.2p amid an across-the-market sell-off. Pension funds, which depend to a large degree on dividends from high street banks and which hold almost £22 billion of bank shares, look likely to dump a huge slice of their investments unless the dividend ban is lifted. Huge falls in stock markets have wiped more than £50 billion off the value of pension funds in the past seven days, according to experts, making it less likely that schemes will be able to meet their obligations in full.

Andrew Kirton, global head of investment consulting at Mercer, the pensions consultant, said: “Clearly the attractions of bank shares have been reduced by recent developments.”

Under the terms of the rescue package, the Government will inject up to £37 billion into the three banks, taking up to £28 billion in ordinary shares and £9 billion in preference shares on which it will be paid a 12 per cent rate of interest.

However, existing shareholders would be offered first refusal on the new shares. The dividend ban was seen as making it much less likely that they would take up their rights, leaving more shares with the Government and more exposure for the taxpayer.

Gordon Brown indicated that the Government was in negotiations with the banks over the dividend issue. Speaking at the EU summit in Brussels, he said: “We want to be temporary holders of these shares. We don’t want to be in the banking business, only to strengthen our banks.”

The Royal Bank of Scotland is understood to be in talks with the private equity firm CVC Capital Partners to offload its Direct Line and Churchill insurance empire. CVC, one of Europe’s top buyout firms, was one of three bidders reported last night to be negotiating to buy a 51 per cent stake in the bank’s British insurance assets.

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