Legal & General, the UK’s largest investment group, yesterday urged the government to reconsider its terms for bailing out three high street banks that could block them from paying dividends for several years.

The government agreed this week to inject up to £37bn in Royal Bank of Scotland, HBOS and Lloyds TSB in return for a mix of preference and ordinary shares. But one of the conditions of the bail-out is that the banks will not pay dividends on ordinary shares until all the preference shares are redeemed.

There has been an outcry from the banks, which claim that the terms will stop investors taking up new shares and make it inevitable that the government ends up with big stakes in them.

Financial Times