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 Halifax-Bank of Scotland after a run on its shares.
News of a merger, valuing HBOS shares at around 200 pence each could be announced within the next 24 hours, BBC Business Editor Robert Peston said.
News of a merger could be announced within 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 prime minister was involved in negotiating the deal, which has the blessing of UK authorities. HBOS and Lloyds declined to comment.
The advanced talks are being encouraged by both the Treasury and Financial Services Authority (FSA) as a deal 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 a deal will ease concerns about the health of the UK banking sector, our business editor added.
Global turmoil
Global turmoil
The credit crunch has wreaked havoc on some of the world's financial institutions in recent days.
Lehman Brothers, the fourth-largest US investment bank, filed for bankruptcy protection, dealing a blow to the fragile global financial system.
The
US Treasury stepped in with an $85bn rescue package to bail out AIG amid fears the group, once the world's largest insurer, could face collapse.
Bank
of America bought Merrill Lynch in a $50bn deal - making the Merrill the third top US investment banks to fall prey to the sub-prime crisis within six months.
In
Russia, trading on the country's main stock exchanges was halted after steep falls this week.
Meanwhile,
in the UK recent economic news has done little to lift the gloom, with unemployment rising once again as the number of job vacancies fell.
The credit crunch has wreaked havoc on some of the world's financial institutions in recent days.
Lehman Brothers, the fourth-largest US investment bank, filed for bankruptcy protection, dealing a blow to the fragile global financial system.
The
US Treasury stepped in with an $85bn rescue package to bail out AIG amid fears the group, once the world's largest insurer, could face collapse.
Bank
of America bought Merrill Lynch in a $50bn deal - making the Merrill the third top US investment banks to fall prey to the sub-prime crisis within six months.
In
Russia, trading on the country's main stock exchanges was halted after steep falls this week.
Meanwhile,
in the UK recent economic news has done little to lift the gloom, with unemployment rising once again as the number of job vacancies fell.
Deal welcomed
Deal welcomed
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.
Our business editor said 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 - for there to 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," he said.
"The last thing they want is a fully fledged crisis."
"The last thing they want is a fully fledged crisis."
HBOS shares rose by as much a 15% having earlier slumped by as much as 50% on the London market.
He added that the deal was negotiated at a very high level, with Prime Minister Gordon Brown telling Lloyds TSB chairman Sir Victor Blank that it would helpful if Lloyds could end the uncertainty surrounding HBOS by buying it.
Shares had a roller coaster ride in early trade, falling sharply amid speculation that the bank's future was in question.
"It was not in the government's interest for there to be the faintest risk that it would have another Northern Rock on its hands," he added.
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.
On the London market HBOS shares have seen wild swings during morning trading, climbing as high and falling as low as 88p.
Under the terms of the proposed takeover HBOS shares would be worth considerably more than their 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 create a banking giant that would be able to cope with the current crisis hitting 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.
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, which was created by the merger of the Halifax and Bank of Scotland in 2001, has come under pressure in recent days amid concerns about its exposure to the US sub-prime market.
HBOS is the parent company of Bank of Scotland and the Halifax.
Questions have been raised about whether it will be able to refinance its debt of more than £100m in coming months.
While the firm itself has offered reassurances about its financial health, the FSA has also moved to reassure the market saying the bank is "a well-capitalised bank that continues to fund its business in a satisfactory way".
"It is interesting to see this as an indication of the consolidation into the financial system," said finance expert Dr Paolo Subacchi, of think-tank Chatham House.
"We are clearly through a phase of restructuring and consolidation and the fact that two big players in the market are signalling their intention to merge is another sign that we are going in that direction."
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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