Lloyds TSB is in advanced merger talks with HBOS to create a UK retail banking giant worth £30bn, the BBC has learned.
Lloyds TSB is in advanced merger talks with HBOS to create a UK retail banking giant worth £30bn, the BBC has learned.
A deal would end uncertainty about the strength of the UK's biggest mortgage lender after a run on its shares.
A deal would end uncertainty about the strength of the UK's biggest mortgage lender, Halifax Bank of Scotland, after a run on its shares.
News of a merger, valuing HBOS shares at 300 pence each could be announced within the next 24 hours, BBC Business Editor Robert Peston said.
News of a merger could be announced within the next 24 hours, BBC Business Editor Robert Peston said.
He added the deal has the blessing of the Treasury and city watchdog. HBOS and Lloyds declined to comment.
He added the deal has the blessing of the Treasury and city watchdog. HBOS and Lloyds declined to comment.
The advanced talks are being encouraged by both the Treasury and Financial Services Authority (FSA) as it will ease concerns about the health of the UK banking sector, our business editor added.
The advanced talks are being encouraged by both the Treasury and Financial Services Authority (FSA) as it will ease concerns about the health of the UK banking sector, our business editor added.
Deal welcomed
Deal welcomed
"The last thing they want is a fully fledged crisis," he said.
"The last thing they want is a fully fledged crisis," he said.
He added there was a real concern that any run on HBOS shares would create enough fear among the bank's financiers - providers of wholesale credit who give the bank its money - that there would be a withdrawal of credit for HBOS.
He added there was a real concern that any run on HBOS shares would create enough fear among the bank's financiers - providers of wholesale credit who give the bank its money - that there would be a withdrawal of credit for HBOS.
"Clearly the watchdog and Treasury will welcome a deal as it will put the bank on a sounder footing," the business editor said.
"Clearly the watchdog and Treasury will welcome a deal as it will put the bank on a sounder footing," the business editor said.
HBOS shares rose by as much 15% having earlier slumped by as much as 50% on the London market.
HBOS shares rose by as much 15% having earlier slumped by as much as 50% on the London market.
Shares had a roller coaster ride in early trade, falling sharply amid speculation that the bank's future was in question.
Shares had a roller coaster ride in early trade, falling sharply amid speculation that the bank's future was in question.
However, as news of the merger talks emerged, shares recovered some of their losses, but the recovery was short lived as slipped into the red once again.
However, as news of the merger talks emerged, shares recovered some of their losses, but the recovery was short lived as slipped into the red once again.
Under the terms of the proposed takeover HBOS shares would be worth considerably more than there current level of 100p.
Under the terms of the proposed takeover HBOS shares would be worth considerably more than there current level of 100p.
Sounder footing
Sounder footing
A buyout would also create a banking giant that would be able to cope with the current crisis roiling financial markets across the globe.
A buyout would also create a banking giant that would be able to cope with the current crisis roiling financial markets across the globe.
While Lloyds would gain access to a larger share of the UK mortgage market, it would also be a case of "the bigger the better" as it would leave the enlarged bank on a sounder financial footing, the business editor said.
While Lloyds would gain access to a larger share of the UK mortgage market, it would also be a case of "the bigger the better" as it would leave the enlarged bank on a sounder financial footing, the business editor said.
The credit crunch has wreaked havoc on some of the world's financial institutions in recent days.
The credit crunch has wreaked havoc on some of the world's financial institutions in recent days.
On Tuesday, the US Treasury was forced to bail out insurer AIG with an $85bn (£45bn) rescue package, US investment giant Lehman Brothers collapsed on Monday and Merrill Lynch was sold to Bank of America in a $50bn deal.
On Tuesday, the US Treasury was forced to bail out insurer AIG with an $85bn (£45bn) rescue package, US investment giant Lehman Brothers collapsed on Monday and Merrill Lynch was sold to Bank of America in a $50bn deal.
HBOS is the parent company of Bank of Scotland and the Halifax.
HBOS is the parent company of Bank of Scotland and the Halifax.
Do you work for HBOS or Lloyds? Are you an HBOS shareholder or customer? Are you concerned about talks of a merger?
Do you work for HBOS or Lloyds? Are you an HBOS shareholder or customer? Are you concerned about talks of a merger?
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