The Financial Services Authority (FSA) is fighting a proposal by Lloyds Banking Group to pay its first dividend since the government acquired a 43% stake in 2008, according to reports.
Chief executive Antonio Horta-Osorio wants to pay a small dividend from the bank's expected 2013 profits in a bid to lure back investors, the Sunday Times reports.
However, the FSA is threatening to block the move because it wants the bank to preserve capital as protection against a possible eurozone break-up.
According to the Sunday Times, Lloyds began talks with the FSA about its dividend payment last month.
It would be paid in early 2014 from 2013 earnings. Credit Suisse analysts have forecast pre-tax profits of about £800m for the period.
Bank of England governor Sir Mervyn King and several other key Bank figures are said to believe the eurozone will split in the next few years and they want banks to be prepared for the fall-out.
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