HBOS and Lloyds TSB in merger talks

According to reports from Robert Peston at the BBC, both Halifax Bank of Scotland (HBOS) and Lloyds TSB (LLOY) are in advanced talks on a merger.

The news comes as HBOS shares show extraordinary volatility in London trading, so far trading anywhere between 88 pence and 214 pence per share according to Google Finance.

HBOS shares have already suffered a steep decline in value this year after HBOS announced a rights issue, and the company has since announced that dividends for the quarter to date will be paid in shares rather than cash.

The company has come under increasing concerns that its operations may be hampered by the rising cost of borrowing on commercial markets in the aftermath of the collapse of Lehman Brothers.

Libor rates has risen to their sharpest for seven years according to the London Evening Standard, which is expected to restrict the flow of cash on commercial markets.

So far the performance of HBOS shares had threatened another potential bank run, which would have been disastrous for the UK due to the sheer size of the Halifax Bank of Scotland’s operations.

While both HBOS and Lloyds TSB have refused to comment on the merger talks, the BBC reports that HBOS shares are likely to be valued anywhere between 200 - 300 pence.

If the deal goes ahead, it will create a super bank in the UK.

While such a deal will be subject to regulatory approval, the UK government and FSA are believed to be actively encouraging the merger, which could help protect and consolidate the UK banking sector.

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