Lloyds to cut use of taxpayer insurance
Conditions in the banking market have improved markedly since the start of the year.
Loans are going bad at a slower rate than the worst case scenarios of six months ago. And bank share prices have risen very sharply indeed.
For those are interest in that sort of calculation, taxpayers were sitting on an unrealised profit of £1.1bn on their ginormous holdings in Royal Bank of Scotland and Lloyds as of this morning - consisting of a £2.8bn gain on Royal and a £1.7bn loss on Lloyds.
Now I don't expect Stephen Hester to crack open the bubbly when I see him later this morning, to interview him for the last in the current series of Leading Questions (which you can see on the News Channel this weekend).
His way is always to accentuate the negative in interviews, with the hope of delivering results that are better than expected. So I anticipate hearing that it's still a little too early to say we're over the worst.
By contrast, Lloyds is acting on the basis that it is past the peak risk of disaster - in that I can confirm that it wants to reduce its use of the Treasury's asset protection scheme, or even do without it altogether (though I think zero use of the scheme by Lloyds is the least likely outcome).
You will recall that when the outlook for banks looked particularly bleak, Lloyds announced its intention to place £260bn of loans and investments into this scheme
This would have meant that taxpayers would bear 90% of future losses on these loans, after Lloyds incurred a first loss of £35.2bn.
It was a way of insuring Lloyds against losses that could have wiped out its capital and bankrupted it.
And for our trouble, taxpayers were to receive a hefty fee, in the form of £15.6bn of non-voting shares - that would have lifted our effective stake in Lloyds to 62%, from 43%.
Now I have spoken to a number of Lloyds big shareholders and they have told me that they regard the scheme as less necessary than it was, because loans are no longer going bad at the rate feared a few months ago.
And they say that with stock markets rising, they are prepared to subscribe new capital to Lloyds, to increase its buffer against future losses, as an alternative to the scheme.
Lloyds is working on such a fund-raising alternative to the asset protection scheme.
One option is a combination of a rights issue and an offer to holders of £7bn of so-called preferred securities, to convert this lower quality capital into higher quality ordinary shares (higher quality from the perspective of the regulator, rather than investors).
Naturally Lloyds can do nothing without the agreement of the Financial Services Authority and UK Financial Investments, which looks after taxpayers' interest in Lloyds.
Both are agnostic about whether Lloyds strengthens itself by using the asset protection scheme or by issuing new shares.
In other words, Lloyds has the green light to come up with an alternative to the asset protection scheme.
And, as I have said, I would expect it to announce a hybrid approach, that it will be raising billions of new equity capital and putting far fewer loans and investments into the asset protection scheme than originally announced.
There is however one big outstanding issue.
Will the Treasury demand that we taxpayers be paid a fee for the way we have underwritten this bank over the past six months by promising the asset protection scheme? (The US treasury is making such fee requests of banks that don't want to take up promised support of this sort.) This is a fraught and controversial question.
Anyway, what Lloyds plans in scaling back its use of the asset protection scheme is another sign that the economy is in better shape than it was.
Now I wonder what Stephen Hester will tell me in a few minutes when I ask him whether Royal Bank still needs the asset protection scheme.