There may have been a bit of a misunderstanding between the banks and the Treasury about the nature of the prohibition on dividend payments pending repayment of the preference stock they are selling to the state.
Apparently, according to well-placed sources, a sensible interpretation of the complex documentation drawn up for the banks' capital-raising would say the following:
1) there is a strict ban on dividend payments for a year;
2) thereafter there would be discretion for the Treasury to permit dividend payments to start again at Royal Bank of Scotland and Lloyds (as enlarged by the planned takeover of HBOS), irrespective of whether all the prefs had been repaid.
So what would determine whether the Treasury gives permission for dividend payments to be resumed?
Well it would depend on whether the balance sheets of the banks had been strengthened by their having disposed of many of their riskier assets and on whether the ratio of their capital to risk-adjusted assets (what's known as their capital adequacy) is back at world-class levels.
As it happens, the prefs are expensive, paying a 12% coupon. So it might well be in the banks' interests to repay them before allocating whatever spare cash is available to the distribution of dvidends on the ordinary shares.
But what should reaasure shareholders in Lloyds and RBS in particular is that there is no blanket prohibition from the Treasury on the resumption of dvidend payments (well except for the coming year - which is sensible in a climate of capital scarcity; and it's relevant that Barclays is not paying a dividend for the second half of this year, even though it is not taking capital from the Treasury).
I expect ministers to confirm all this before too long.
Which would be highly significant: it would rescue the takeover of HBOS by Lloyds TSB from possible collapse (see my note on this from yesterday); and it would make the new shares being sold by Lloyds TSB and RBS much more attractive to private-sector investors, reducing the risk that most of them will be dumped on the taxpayer.
Some will doubtless see all this as a u-turn under pressure by the Treasury. But the banks will probably simply breathe a sigh of relief.
That said, the scale of the misunderstanding between them and the Treasury was quite something, in that on Monday morning the assorted official announcements of the capital injection by taxpayers all stipulated that dividends would be ceased till the prefs were repaid.
The negotiations were, of course, carried on all through Sunday night till the sun rose on Monday morning - so perhaps important nuances were lost as exhaustion gripped the ministers, officials and bankers.