Lloyds TSB and HBOS in advanced merger talks

Lloyds TSB and Halifax Bank of Scotland (HBOS) are in advanced talks for a merger, the banks revealed today.

After a morning of rumours, a statement from HBOS read: "In the light of market speculation, the board of HBOS plc confirms that it is in advanced talks with Lloyds TSB Group plc which may or may not lead to an offer being made for HBOS."

A spokesperson for Lloyds TSB said: "We can confirm we are in advanced talks with HBOS. We are not planning any further statements today."

HBOS – the UK's largest mortgage lender covering around a fifth of the market – has come under pressure this week seeing its share price fall significantly in the aftermath of the Lehman Brother collapse and falling UK property.

At 8:58 BST it was down 51.65 per cent to 94p – after falls of 20 per cent yesterday and 17 per cent on Monday.

After news of the merger broke, the HBOS share price made a recovery and by 13:01 BST the bank's share price rose 5.60 per cent to 192.20p.

The BBC reports Lloyds TSB is prepared to make an offer well above HBOS current depressed share value and the deal has been brokered at the very head of the companies under pressure from the government and Gordon Brown in particular.

Meanwhile, staff inside HBOS have been told to continue with "business as usual", a source told myfinances.co.uk.

Graham Goddard, deputy general secretary of the union Unite, warned any merger could result job losses as branches would close.

"With an economic downturn biting, thousands of staff at both banks will be very worried about the consequences of a merger," he said.

"Unite is calling for urgent talks at the highest level with the banks. We will not accept any compulsory redundancies as a result of this merger."

He added: "The corporate greed of large institutions has brought the financial markets to its knees. The major job losses in the sector are fundamentally caused by precarious investments and transactions by bankers pursuing large rewards. Staff working in the financial services must not pay the price for corporate greed."

It is hoped any deal will bring to a close any uncertainty over the future of HBOS.

Amid such pressure on the HBOS share price, the Financial Services Authority (FSA), which regulates the industry, has put out a statement saying it is satisfied HBOS is not at risk of going under.

A statement read: "Since the beginning of the current extreme difficulties in the financial markets, the FSA 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."

In June, HBOS launched a £4 billion rights issue to shore up its finances.