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by Graeme Wearden

Pressure is mounting on the government to renegotiate the terms of the part nationalisation of the UK banking sector, as a City analyst warned that shareholders face a dividend freeze until 2012.

Discussions have already begun between the Treasury and Lloyds TSB, following the sharp fall in its shares since the bail-out was announced on Monday.

Investors are concerned that Lloyds, like Royal Bank of Scotland, was forced to agree not to pay dividends until it has repaid the government. Alex Potter, banking analyst at Collins Stewart, warned this morning that in the current financial climate this will probably take several years, especially as he expects more mortgage holders to struggle with their payments.

“Our current thinking is that arrears peak in a year’s time or thereabouts meaning that 2010 earnings will likely be better than 2009 earnings but only marginally so. For these two banks, the equity dividend moratorium is unlikely to end before 2012,” Potter predicted.

The government is injecting a total of £15bn into Lloyds TBS and HBOS. They are still planning to merge, despite fears over the financial health of the Halifax owner.

Vince Cable, Liberal Democrat Treasury spokesman, questioned whether the deal still made sense. It was announced before Gordon Brown’s bail-out was agreed.

A Treasury spokesman said today that the recapitalisation would put UK banks on a stronger footing, and insisted that the government was not planning to change the terms.

“The details were set out clearly by both the government and the banks,” he said.

Shares in Lloyds TSB rose by almost 9% this morning, fuelled by speculation that the UK government may renegotiate the terms under which it is providing the capital. Without a dividend to look forward to, there is less incentive for fund managers to hold shares in the bank.

At this morning’s price of 164.5p, Lloyds is still below the 173.3p at which the government is buying its preference shares, suggesting that it has lost close to £300m on the deal.

Small investors are also disappointed by the dividend freeze. The UK Shareholders’ Association yesterday accused the government of acting in a heavy-handed manner and punishing shareholders.

“How can a bank make a profit when it is charging 12% on the preference shares offered by the government,” asked Roger Lawson of the UKSA, who said he had received several hundred emails and complaints from shareholders.