Lloyds TSB 'close to HBOS takeover'

1:37pm Wednesday 17th September 2008

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Lloyds TSB and troubled mortgage bank HBOS were said to be close to announcing a deal to create a new savings and mortgage giant.

The latest twist in a dramatic week for world financial markets halted a further damaging slide in shares at HBOS.

According to the BBC the two firms are in "advanced talks" over a combination that would create a group with a market value of around £30 billion and more than £300 billion of deposits.

A deal - structured as a takeover by Lloyds - would end uncertainty about the health of HBOS, which has seen its share price plunge over the last three days amid concerns about its funding position.

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.

Both HBOS and Lloyds TSB have so far declined to comment.

At one point HBOS shares were down 50% - taking the stock down by more than half over the past three days. HBOS were later back into positive territory after the merger news hit the market. There were also wild swings for the wider FTSE 100 Index as investors reacted to the merger news and the US Government's 85 billion US dollar (£47.2bn) bail-out of US insurance giant AIG.

HBOS - which has two million smaller shareholders - is the UK's biggest mortgage lender and savings bank, boasting £258 billion of deposits. It had an estimated 20% share of the mortgage market at the end of last year 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. During 2007, the latest year for which figures are available, it wrote 8% of all mortgages in the UK.

The bank is also the UK's third biggest savings bank, with £65 billion saved through it and Cheltenham & Gloucester, and the country's biggest current account provider.