Lloyds Banking Group and the Treasury were locked in talks last night aimed at announcing a deal as early as today for the bank to insure itself against losses on about £250bn of assets.
Details of the agreement were still to be agreed yesterday evening after more than a week of fraught negotiations between Britain's biggest retail bank and the Government.
An announcement could yet slip into next week. Both sides had hoped to unveil terms a week ago but were unable to compromise on key details such as the size of the state's stake in Lloyds.
The Government already owns 43 per cent of the bank after October's recapitalisation of the sector and Lloyds is unwilling to allow the stake to rise above 50 per cent.
Other crucial elements to the terms of the deal include the price of the insurance and method of payment, the "first loss" that Lloyds will take on the protected assets, and the Government's conditions on company pay and lending to support the economy.
Lloyds is said to have irritated the Treasury by changing its mind about the assets it wants to insure, prolonging the process. The size of the asset pool could also differ from expectations of about £250bn.
Royal Bank of Scotland became the first lender to take part in the Government's asset protection scheme last Thursday when it agreed a deal to protect £325bn of assets.
RBS is paying fees worth about 4 per cent of the assets' value and will take the full hit on the first 6 per cent of losses, with the Government on the hook for 90 per cent of any further losses.
RBS, already more than 50 per cent Government-owned, had limited scope for negotiation after the Government's support prevented it from collapsing last year. But Lloyds has been holding out for better terms.
Eric Daniels, Lloyds' chief executive, has said his bank would not have needed Government capital if it had not rescued HBOS in a takeover orchestrated by the Government.
Lloyds shares fell 15 per cent yesterday to 40.3p, a new low for its closing price since the financial crisis began. The bank's shares have lost 68 per cent of their value this year and have been battered since it revealed last month that HBOS would lose £11bn for 2008. Lloyds declined to comment.Reuse content