Angry investors call for heads of Lloyds bosses

City investors will heap further pressure on Sir Victor Blank and Eric Daniels to step down as chairman and chief executive of Lloyds Banking group this week after the taxpayer was forced to take a 65 per cent controlling stake in the bank yesterday.

After days of negotiations between Lloyds' management and Treasury officials, a deal allowing the bank to dump £260bn in toxic assets into a Government-backed insurance scheme was finally thrashed out.

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Under the deal, the Government forces Lloyds to commit to £28bn in new lending over the next two years, while officials from the Government's UK Financial Investments arm, created to look after government bank stakes, will increase their presence on the board.

Lloyds is paying a fee to the Treasury of £15.6bn to take part in the Asset Protection Scheme.

But diluted equity investors in the Square Mile have been quick to vent their anger and are now calling for Sir Victor and Mr Daniels to quit.

"Their positions are untenable," said one leading investor. "Shareholders want blood. The perception is that Daniels, though clearly culpable, was caught in the middle. This was very much Blank's deal and I think he should go."

Despite the swelling City frustration, sources close to Lloyds say that neither Sir Victor nor Mr Daniels, would quit.

"We understand what the City is saying and I'm sure we'll have to experience some short-term anger, but their cries are rather academic," said the source. "Gordon Brown and the Government are backing the management. That's that."

The source said that Sir Victor, 66, remained "keen to see this thing through. Nobody wanted things to come to this but they have. We are now in the eye of the storm."

In January, Sir Victor said that Lloyds would continue to resist government control: "We can probably conduct our business better than the Government can conduct it for us."

John McFall MP, the chairman of the Treasury Select Committee, said he would be watching Lloyds to ensure that it meets its new lending requirement.

"We will be periodically monitoring that the lending is actually happening," he said. "Lloyds was actually run pretty conservatively, but the HBOS merger has been its downfall. However, there are synergies, and I would urge the market to take a long-term view of the bank's prospects," he added.

Michael Fallon, the Tory deputy chairman of the committee, said: "This is Brown's mistake. He was the one who changed the law. This [Lloyds –HBOS deal] is the most expensive cocktail party in history."