Royal Bank of Scotland is reportedly preparing to raise billions of dollars from a share sale just months before the next general election.
At least 10 per cent of its stock is likely to be sold at the end of 2014 - a move that could raise STG5 billion ($A7.5 billion) for the government ahead of a 2015 election, according to The Sunday Times.
It would be the first time cash was returned to the taxpayer since the government spent STG45.5 billion bailing out the lender in the wake of the financial crisis in 2008.
RBS declined to comment, but the report comes amid further pressure on Chancellor George Osborne to reduce government debt after ratings agency Moody's downgraded the UK's AAA credit rating to AA1 on Friday.
Taxpayers are still sitting on a paper loss of around STG14 billion as RBS shares remain below the STG5 break even price paid by the government.
The lender will announce its full year results on Thursday and banking analyst Ian Gordon at Investec Securities is expecting compensation provisions for mis-selling to plunge RBS even deeper into the red with losses of STG3.9 billion in 2012 - far worse than the STG766 million loss reported for 2011.
RBS, which is 81 per cent owned by the state, disclosed in November it was taking an additional STG400 million in claims relating to payment protection insurance.
It also comes after the lender was fined STG390 million by US and UK regulators this month after evidence emerged of traders fixing the Libor interbank lending rate.
A report in The Sunday Telegraph suggests the bank will also announce plans to cut the size of its investment bank by STG30 billion and cut hundreds of jobs.
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