Abbey National and Bank of Scotland in merger talks

UK's second biggest mortgage lender, Abbey National, and the country's seventh largest bank, Bank of Scotland, are said to be in early stages of talks for a possible merger between the two. The merger, if it goes through, will create a company that will have a market value of approximately $33 billion.

According to industry sources, the first move is supposed to have been made by Lord Tugendhat, the chairman of Abbey National. He is understood to have met Sir John Shaw, the governor of Bank of Scotland to discuss a potential deal. Abbey National, has been on an acquisition trail, recently buying Scottish Provident, the mutual assurer, for an estimated $2.58 billion.

It is expected that these talks could trigger interest from other UK banks, including Lloyds TSB, Barclays and Royal Bank of Scotland, all of whom are very keen to take part in consolidation of the UK banking industry.

This move with the Bank of Scotland would represent the second time that the Scottish bank has tried to merge with a UK bank, after its aborted attempt, last year, to win NatWest in a hostile battle with Royal Bank of Scotland.

While Abbey National is keen to structure the deal as a takeover of Bank of Scotland, it would finally depend on the premium Abbey National is willing to pay.