Alistair Darling, chancellor, is braced for an order by the European Commission seeking the shrinking of Lloyds Banking Group as a condition for the granting of state aid.
Treasury officials believe Brussels could insist that the bank shrink its balance sheet – possibly through asset disposals – or accept restrictions over its behaviour in the market.
Lloyds admitted the possibility that the commission could impose restrictions in a prospectus issued yesterday as part of its £4bn placing and open offer. These could include selling noncore or even core assets.
Talks between officials at the Treasury and Brussels have been under way for some weeks.