HUNDREDS of thousands of shareholders were dealt a blow today when banks said they would suspend dividend payments, possibly for several years, following the government’s multi-billion pound bailout.

The halt in payouts came as part of the Treasury’s plan to inject up to £37 billion of new capital into Royal Bank of Scotland (RBS), Lloyds TSB and Halifax Bank of Scotland (HBOS).

The unprecedented move means taxpayers could end up owning about 60 per cent of RBS and 40 per cent of the merged Lloyds TSB and HBOS, assuming private shareholders do not stump up the cash. Barclays said it intended to raise £6.5 billion without government help.

While the part-nationalisation is bad news for shareholders, there was potentially good news for borrowers and savers. The Treasury wants banks to commit to lending at 2007 levels – before the credit crunch really hit home – which could help to thaw the mortgage freeze. And the deal should help to convince savers that their money is secure.

Q: Why do the banks need more capital?

A: The government announced a £50 billion recapitalisation plan last week – only half of which would have been available immediately – but it became clear over the weekend that it had not done enough to solve the crisis. Rates in the interbank markets, where banks lend to each other, went up rather than down.

The Treasury therefore told the banks they would need to raise more capital from shareholders, underwritten by the government. As shareholders are expected torefuse to stump up the cash, the government will step in and could end up owning majority stakes.

Q: What does it mean for savers?

A: The reaction to the bailout was positive, with the FTSE 100 up around 150 points at lunchtime, suggesting the government may have finally done enough to secure the banks which will be good new for depositors.

Sir Victor Blank, chairman of Lloyds TSB, said: “Today’s news is good for investors and customers alike. Lloyds TSB’s already robust financial position is further enhanced by today’s capital raising which in turn allows us to drive forward with our plans to acquire HBOS. Our trading update underlines that our core business is strong and growing. Our customers can feel confident that their money is secure. Lloyds TSB is and remains a great place to bank.”

Q: What does it mean for borrowers?

A: As part of the deal, the banks had to commit to maintain “competitively priced mortgage lending over the next three years at a level at least equivalent to that of 2007”.

That is much higher than current levels, so, if it lives up to this expectation expect better mortgage deals when the dust settles.

The commitment does not extend to “non-confirming” lending though, so we are unlikely to see a return to the days of 100 per-cent plus mortgages and loans requiring no proof of income.

Q: I’m a shareholder with HBOS and Lloyds. What does it mean for me?

A: HBOS has 2.4m small shareholders, many of whom have owned the stock since it was demutualised, while Lloyds has about 800,000.

Lloyds is still intending to take over Halifax, although both banks will have to raise more capital before the deal goes ahead.

Halifax will be raising £11.5 billion - £8.5 billion in ordinary shares and £3 billion in preference shares - while Lloyds is raising £5.5 billion - £4.5 billion in ordinary shares and £1 billion in preference shares.

Lloyds also revised the terms of its offer for HBOS from 0.83 Lloyds shares for every HBOS shares to 0.61.

Q: What are preference shares?

A: Preference shares, as the name suggests, rank ahead of ordinary shares. The Treasury will take up preference shares in both Lloyds and HBOS for which they will earn 12 per cent a year - a good deal for the taxpayer. Until the preference shares are paid off, ordinary shares will not get a dividend, which could take several years.

Q: So will I be offered more shares?

A: Yes, existing shareholders will be offered more ordinary shares. Initially, the Treasury will take up shares in Lloyds at 173.3p and in HBOS at 113.6p, representing an 8.5 per cent discount to their closing prices on Friday.

Once the government has taken up the shares, existing shareholders will be able to buy them back under a system known as ‘clawback’.

If private shareholders do not take up the offer, existing Lloyds TSB shareholders will own 36.5 per cent of the combined group, existing HBOS shareholders will own 20 per cent and the Treasury will own 43.5 per cent.

Q: So should I take up the shares?

By lunchtime shares in HBOS had fallen to 97.8p - below the terms of the capital raising, meaning there would be no point taking up the offer. However, shares in Lloyds and RBS were both above the terms of the offer at 177.5p and 67.10p respectively.

Analysts, though, urged caution. Paul Kavanagh Killik & Co, the stockbroker, said: “It is important to remember the government is underwriting the banks and not their share prices. You have to question putting more money in when it is not clear how deep a recession we are entering. I would say there are better homes in the financial sector for your cash.”

Q: What about RBS?

A: It will raise £20 billion in capital, including £15bn of ordinary shares at a fixed price of 65.5p, which will be bought by the Treasury if existing shareholders do not take them up.

Q: And Barclays?

A: It will raise £6.5 billion, but prefers to go through private sources rather than taking up the government’s offer. Barclays has already lined up an unnamed existing investor to contribute £1 billion of the planned capital increase, analysts said.

The company has also opted not to pay a dividend until the second half of 2009.

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