Lloyds TSB on Wednesday night agreed a £12bn rescue takeover of HBOS after the government brokered a deal to save the country’s largest mortgage lender from a crisis of confidence. This is a deal it described as a "unique opportunity".

After three days of turmoil in the financial markets triggered fears for HBOS’s viability, the government signalled it was willing to waive competition rules to allow the merger that will create Britain’s biggest retail bank.

Gordon Brown and other ministers have been active in encouraging a market solution to save HBOS in an effort to avoid a repeat of the run on Northern Rock, the mortgage lender that was nationalised.

The deal values shares in Halifax Bank of Scotland - the UK's biggest mortgage lender - at 232p each, and could lead to cost savings of £1bn a year.
Lloyds confirmed jobs would be lost as a result, but but played down claims that up to 40,000 staff faced the axe.

Lloyds TSB, the U.K.'s biggest provider of checking accounts, fell 3.5 percent today in London trading after saying it will pay 232 pence a share in stock for HBOS, 58 percent more than yesterday's closing price of 147.1. The combined bank will sell ``non-core'' assets, pay a second-half dividend in stock and reduce the payout ratio in 2009 to 40 percent of earnings, officials told reporters.

Edinburgh-based HBOS lost almost half its market value this week on concerns about a shortage of funds to back its mortgages, leaving the company in the same predicament that led to the government-backed bailout of Northern Rock a year ago. Prime Minister Gordon Brown discussed the fate of HBOS with Lloyds TSB Chairman Victor Blank as recently as four days ago, according to a person familiar with the meeting.

The government would allow the deal as financial stability "must trump" competition fears, the chancellor said. Alistair Darling added that without the deal the outlook was "very bleak indeed", he denied the authorities had rushed through the deal.

"We were onto their (HBOS's) problem for several weeks. It didn't just suddenly happen," he told the BBC.