Lloyds TSB in merger talks with HBOS: reports

London, Sep 17 : British bank major, Lloyds TSB is in advanced talks to buy UK's troubled mortgage lender HBOS, to create a retail banking giant worth 30 billion pound, UK media reports say.

The advanced talks are being encouraged by both theTreasury (Ministry of Finance) and UK's financial services industry regulator Financial Services Authority (FSA), as adeal will ease concerns about the health of the UK banking sector, news broadcaster BBC has reported.

The deal was negotiated at a very high level, with PrimeMinister Gordon Brown telling Lloyds TSB chairman Sir Victor Blank that it would be helpful if Lloyds could end uncertainty surrounding HBOS by buying it, BBC said.

In the London market, HBOS shares have seen wild swingsduring morning trading, climbing as high as 220 pence and falling as low as 88 pence. HBOS shares were trading down 19 per cent at 147 pence on the London Stock Exchange in the afternoon trade.

Stating about the developments in this regard, the FSA said, "We are satisfied that HBOS is a well-capitalised bank that continues to fund its business in a satisfactory way."

Further, another UK daily Financial Times has also reported that "the high-level talks are detailed and at an advanced stage, according to a person with knowledge of the banks...an announcement to the stock exchange is expected today."

FT quoted a statement from HBOS that, "in the light ofmarket speculation, the Board of HBOS Plc confirms that it isin advanced talks with Lloyds TSB Group plc which may or maynot lead to an offer being made for HBOS. A further announcement will be made when appropriate."

A deal would dramatically increase the size of Lloyds' balance sheet and it is unclear to what extent Lloyds iscapable of absorbing HBOS's balance sheet, which had assets of more than 600 billion pound at the end June, the report added.

Lloyds, which has come through the credit crunch in bettershape than many of its rivals due to its conservative approach to lending and financing its balance sheet, has assets of just over 300 billion pound, it added.

HBOS, which was created by the merger of the Halifax and Bank of Scotland in 2001, has come under pressure in recentdays amid concerns about its exposure to US sub-prime market.

Interestingly, in May, Lloyds TSB had decided to move 450 information technology jobs, 250 of them permanent, to India provoking immediate hostility from bank unions.