Britain’s biggest mortgage lender, Halifax Bank of Scotland, was today in talks over a possible merger with rival Lloyds TSB.
HBOS saw its shares plunge for the third day in a row, diving as much as 50 per cent on London’s share index which hit a three-year low yesterday.
The company is the UK’s biggest lender and savings bank, with £258 billion of retail deposits, and 15 million savers.
Lloyds TSB, which does the bulk of its mortgage lending under its Cheltenham & Gloucester brand, is the UK’s third biggest lender in terms of outstanding home loans. It was the lender for 24 per cent of all new mortgages during the three months to the end of June.
It is also the UK’s third biggest savings bank with £65 billion saved and the country’s biggest current account provider.
Lloyds TSB chairman Sir Victor Blank is reported to have discussed the proposal with Prime Minister Gordon Brown, who is wrestling with an almost unprecedented period of economic and financial market turmoil.
It is understood the Government has also said it will over-rule any concerns that competition authorities may raise about the move.
HBOS confirmed talks were at an advanced stage.
The speculation fuelled a rollercoaster session today for London’s FTSE which quickly slumped to a 40 month-low before recovering back into the black.
HBOS topped the fallers board at the start of trading, then led the casualty list as its share price plunged. But by noon, it rallied as news of a possible merger spread.
There were also suspicions today that HBOS might have been a victim of “short-selling”, where investors make money by effectively betting on the price of a company falling.
The Financial Services Authority said: “Since the beginning of the current extreme difficulties in the financial markets, the Financial Services Authority has worked intensively with all major UK banks to ensure they have credible capital and liquidity plans.
“We are satisfied that HBOS is a well-capitalised bank that continues to fund its business in a satisfactory way.”
By Business Editor Amy Bould
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