The Treasury is considering dangling the lure of lucrative shares in the banks to pension funds and other City investors to reduce the cost to taxpayers of its bailout plan, The Times has learnt.

Officials at the Treasury are considering whether to allow financial institutions access to the £9 billion of high-yielding preference shares that the Government is buying as part of its £37 billion bailout of Royal Bank of Scotland, HBOS and Lloyds TSB.

The preference shares pay 12 per cent a year and the idea is to allow City fund managers to buy some in the hope that they will be encouraged to purchase further ordinary shares in the three stricken banks.

Under the original plan, the Government was to take on all the preference shares, leaving ordinary shareholders with stock that paid little or no dividend. Ministers initially indicated that the banks would not be allowed to pay any dividend while the preference shares were outstanding, but now it appears to have recognised that its stand was too draconian.

A Treasury spokesman confirmed yesterday that a wider approach was being considered: “It’s one of many options that we are looking at. It will be up to ministers to decide.”

Fund managers who bought into the preference shares would be expected also to buy the ordinary shares. At present, all shares in all three banks are trading at below the price set for the huge fundraising, leaving investors with little incentive to step in.

HBOS is offering stock priced at 113.6p a share, but it was trading at 86½p at Friday’s close. Lloyds TSB, which plans to offer stock at 173.3p a share, was at 166p on Friday, while RBS stock stood at 51p, against the offer price of 65½p. If existing shareholders do not take part in the rights issues, the Government could be stranded with almost 60 per cent of RBS and more than 43 per cent of the HBOS-Lloyds TSB group, assuming that such a merger is approved by HBOS shareholders.

The Treasury spokesman said that the main criteria determining the shape of the recapitalisation plan would be to preserve British financial and economic stability and to ensure that taxpayers receive good value. A decision will be made by Alistair Darling before Christmas.

The preference shares could be made available to investors from UK Financial Investments, the group established by the Treasury to manage the stakes it buys in the banks as well as its holdings in Bradford & Bingley and Northern Rock, the nationalised mortgage lenders. They would not be tradeable in the same way as ordinary shares and would have to be held for at least five years under the terms of the scheme.

RBS is poised to become the first of the banks to approve the rights issue plan when it holds a shareholder meeting this week. The bank, which is shedding at least 3,000 jobs from its investment banking division, declined to comment. Lloyds TSB could not be reached for comment.

Separately, Lord Stevenson of Coddenham, the chairman of HBOS, Britain’s biggest mortgage lender, said on Friday that the group might have to be nationalised if its shareholders did not back its proposed £5.7 billion takeover by Lloyds TSB. A vote on the proposed takeover, which is likely to lead to many thousands more job cuts, is due to be held on December 12.

Barclays is taking a different path out of the crisis by seeking £6 billion from investors in the Gulf to shore up its balance sheet.

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