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Date: Wednesday 15 Oct 2008

LONDON (ShareCast) - Shares of Lloyds, HBOS and RBS bobbed up and down today on rumours the banks want to lift the dividend ban imposed by the government, which was a condition in its £37bn bailout scheme.

As part of the £37bn cash injection, the government has apparently barred the banks concerned from paying dividends on their ordinary shares until the preference stock is bought back from the government.

Lloyds TSB shares surged earlier in the day on talk the government may allow it to set its own dividends or risk the merger deal with HBOS unwinding. Analysts suggested Lloyds TSB shareholders could vote against the government-backed merger with HBOS if the dividends were suspended.

Royal Bank of Scotland was also higher on talk that it too will want a similar dividend concession.

But shares slid back down by the close as traders speculated whether the government will actually back down on the issue.

Earlier, BBC business editor Robert Peston said there may have been a misunderstanding between the banks and the Treasury about the nature of the prohibition on dividend payment.

Peston said, according to well-placed sources, that a ‘sensible interpretation’ of the deal could see a strict ban on dividend payments for a year, thereafter the Treasury could sanction the payments of dividends even if all the preference stock had not been paid back.

“I expect ministers to confirm all this before too long,” added Peston.

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