The BBC has reported that HBOS is in advanced merger talks with Lloyds TSB.
HBOS shares have taken a pounding this week on the news that US investment bank, Lehman Brothers, has filed for bankruptcy and that American International Group, better known as insurer AIG, could be the next and the biggest victim of the credit crisis, so far.
Yesterday, HBOS’s long-term credit rating was downgraded by Standard & Poor’s and despite reassurances from the bank that its retail deposits total £258 billion, shares in the group plummeted another 40% in this morning’s first hour of trading on the London Stock Exchange.
A merger of the two banks would create a retail giant: HBOS, which owns Bank of Scotland and Halifax, is the UK’s largest mortgage lender, while Lloyds TSB is the parent company of Cheltenham & Gloucester, the UK’s third biggest lender in terms of outstanding mortgages.
Since the onset of the credit crisis, questions have been raised about HBOS’s dependence on the wholesale money markets and confirmation of a deal with Lloyds TSB now could end speculation about its vulnerability.
At this stage both HBOS and its suitor have declined to comment on the news.