Halifax and Bank of Scotland have confirmed overnight reports that they are in talks regarding a "potential merger of equals" of the two companies.
Bank of Scotland, which has lost out in recent bidding wars for NatWest and Abbey National, is particularly keen on striking a deal as the UK banking sector consolidates. The English and Scottish banks have complementary businesses and it is unlikely that a merger would encounter the competition problems which are currently stalling Lloyds TSB's attempted takeover of Abbey National.
Bank of Scotland chief executive Peter Burt is expected to get the top job in the enlarged group, to be succeeded by Halifax CEO James Crosby on retirement.
Cost savings will be a key factor, with Bank of Scotland expected to sacrifice its Edinburgh HQ as part of the merger package.
Halifax issued a brief statement on the London Stock Exchange Regulatory News Service this morning confirming the talks. "Any transaction would be structured as a nil premium merger based on a one for one share exchange ratio," says the statement. "Discussions are continuing and a further announcement will be made when appropriate."