Update: Lloyds confirms 12.2bn HBOS merger

Lloyds TSB has confirmed it is taking over beleaguered rival HBOS in a deal worth £12.2bn. Prime Minister Gordon Brown is understood to have played a role in negotiations.

The merger, which gives the enlarged group more than a quarter of the UK mortgage market, is subject to regulatory approval although it is understood that it will escape normal competition rules. Halifax, HBOS’s retail bank, is already the UK’s biggest mortgage lender, with 20% of the market.

Lloyds TSB says it expects the deal to boost annual earnings by over £1bn a year by 2011 through cost savings and boost its earnings per share by over 20% a year. It will also make a number of redundancies, although Lloyds TSB chief executive Eric Daniels says reports of 40,000 are “on the high side”.

The deal values shares in Halifax Bank of Scotland at 232p each. The new bank will continue to use HBOS’s headquarters in Scotland.

Lloyds TSB chairman Sir Victor Blank says: “This will be a unique opportunity to accelerate and extend our strategy and create the UK’s leading financial services group.”

The deal ends uncertainties about the strength of HBOS, which saw its share prices dramatically fall over the past 48 hours.

The Financial Services Authority and the Treasury encouraged the merger, which they believe will ease concerns over the health of the UK banking sector.

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