The figures, compiled by analysts at Exane BNP Paribas, make even a partial sale of the Government’s stake in either bank before a general election next spring look highly unlikely.

The analysts calculated that the state’s holding in Lloyds is £10.9bn underwater and £6.7bn out of the money at RBS.

“We continue to view UKFI [the body managing the investments] as a (very) long-term shareholder,” Exane’s Ian Gordon said. “We assume that the test likely to be applied by UKFI is one of absolute return to (at least) break-even. That could be a long wait.”

UKFI has said it expects to sell the stakes piecemeal back to the market as soon as possible. The taxpayer owns 43.4pc of Lloyds, acquired at an average of 124.55p, and 70.3pc of RBS, bought at 51.21p. The stakes rise to 62pc and 95pc respectively once the “B” shares used to pay for the toxic debt insurance scheme are included.

Lloyds shares yesterday fell 6.09 to 70½p after adjusting to take account of its £4bn placing and open offer. RBS, which announced 700 job losses in IT and property yesterday under plans to cut around 20,000 staff globally, fell 0.7 to 42.4p.

Some of the potential losses in Lloyds could be recovered sooner, though, after the lender warned the Government might renegotiate the terms of the asset protection scheme (APS). In the prospectus, the bank said: “Negotiations are continuing and, although not currently expected by the board, may result in changes to the terms announced on March 7.”

The Treasury sought to downplay the warning, saying: “The Government is now undertaking a detailed examination of the assets and will announce final details in the coming months. We have not changed our initial assessment of the overall taxpayer exposure.”

The prospectus further revealed that European regulators could force Lloyds to unpick its merger with HBOS. In return for state aid approval, the EU may demand “the cessation or disposal of certain parts of the business [that] … could require the group to divest or exit core businesses”.

The £100m the Government will make on the deal comes on top of the £995m in profit the Bank of England has made from its emergency support packages for the financial system, but will have little impact on the billions of potential losses.

Lloyds said converting the preference shares into stock will remove the annual £480m cost of paying dividends on the stock, and “will thereby improve the group’s profitability, cashflow, liquidity and organic capital generation”.

It will add 0.8 percentage points to its core tier one capital, taking the ratio to 6.7pc before the effect of the APS, which is expected to lift the ratio to 14.5pc.

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