Lord Davies, the former trade minister, is masterminding a £10bn raid on Lloyds Banking Group that would allow the Government to offload a big chunk of its shareholding in Britain's biggest high street lender.
Sky News can exclusively reveal that Lord Davies, who served in the last Labour administration, has assembled a consortium of blue-chip City and international investors to buy as much as half of the taxpayer's 39% stake in Lloyds.
Lord Davies has been working on the plan for more than a year, according to insiders, and approached the Treasury about his proposal several months ago.
Corsair Capital, the financial services-focused private equity firm where he is a senior partner, would be part of the consortium but would not buy the stake on its own.
A former chairman and chief executive of Standard Chartered, the emerging markets bank, Lord Davies has enlisted the backing of sovereign wealth funds in Asia and major City institutions.
The deal would be structured to acquire the Lloyds stake at somewhere close to the current share price, which by one measure is now above the taxpayers' break-even price.
HSBC and JP Morgan, the Wall Street bank from which Corsair was spun out several years ago, are said to be helping Lord Davies to structure and finance a deal.
The Government paid more than £20bn to rescue Lloyds during the banking crisis of 2008, although it quickly recouped £2.5bn as a fee for the implicit guarantee the bank had enjoyed from its prospective participation in a giant scheme to insure toxic banking assets.
Lord Davies is understood to be in active dialogue with the Treasury about his proposal, which would be structured to allow the Government to share in any future rise in the Lloyds share price.
Arranging it in this way would allow George Osborne, the Chancellor, to avoid any future accusation that he had sold the Lloyds shares too cheaply.
Gordon Brown was dogged by criticism that he had sold Britain's gold reserves too cheaply, leading to broader questions about his economic competence.
The Government paid more than £20bn to rescue Lloyds Institutions such as Standard Life Investments have been approached about participating in Lord Davies' deal, although sources played down the likelihood that Temasek Holdings, the Singaporean state-backed fund, would be involved.
The Treasury has not yet decided whether to proceed with a transaction with Lord Davies's consortium, although the former trade minister is said to be positive about the prospects of a deal.
However, one insider insisted on Saturday that it could still not happen because of competing proposals from other investors keen on buying the Government's Lloyds shares.
The exact size of the stake that the consortium would buy is unclear, although it is likely to be much larger than 10%, or a quarter of the Government's shareholding.
Lord Davies would not seek board representation as part of any deal, a source said, despite the fact that - if it bought 20% of the bank - it would become easily the biggest private sector shareholder in Lloyds.
At Friday's closing share price of 64.63p, Lloyds had a market capitalisation of £46.1bn.
Antonio Horta-Osorio, Lloyds' chief executive, will receive a larger bonus if the Treasury sells at least a third of its stake for more than 61p-a-share.
The bank's share price has recovered sharply during the last year as its underlying earnings power has become apparent.
Lloyds has been the most heavily punished of the UK banks from the scandal surrounding the mis-selling of payment protection insurance, having had to pay out well over £4bn to date.
Mr Osborne said in his Mansion House speech last month that he was actively considering proposals to sell Lloyds shares and it is conceivable that the first disposal could come as soon as the next few weeks.
UK Financial Investments, the agency which manages the taxpayer's stake in Lloyds, is understood to be aware of Lord Davies's consortium.
The Lloyds stake is not the only state-backed banking asset for which Lord Davies is trying to make an offer. Corsair is also among three remaining bidders for more than 315 Royal Bank of Scotland branches, and has secured the backing of the Church Commissioners for England in an attempt to provide an ethical dimension to its plans.
Lloyds and Lord Davies were unavailable for comment.
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