Merger Rumour Stirs Big Banks; FINANCE,BANKS,MERGERS

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Byline: RUTH SUNDERLAND;IAN KING

BANKS are braced for fresh takeover turmoil after speculation about a [pounds sterling]37 billion merger of the Halifax mortgage bank and insurer Prudential.

Sources believe that other suitors such as Lloyds TSB may be eyeing Halifax, which has fallen out of favour with the City.

The former building society has lost ground to rivals in its key mortgage market and is accused of failing to capitalise on its [pounds sterling]3 billion cash mountain.

Sir Brian Pitman, chairman of Lloyds TSB and a legendary predator, is known to be on the prowl for acquisitions.

He declared recently that the recent shakeout in share prices had produced 'golden opportunities' for bids.

If Halifax merges with the Pru or another partner, it is likely to throw the sector into a flurry of deal making, with rivals such as Abbey National, NatWest, Barclays and Norwich Union scurrying to review their corporate strategies.

Possible pairings include Abbey and Norwich, which already have a successful medical insurance joint venture. Insurer Legal & General is also rumoured to be eyeing former building society Northern Rock.

'A Halifax-Pru merger would be bound to provoke a rash of deals because it simply demands a response from the competition,' said one analyst.

The tie-up would create a huge personal finance company, dominating the mortgage, savings and pensions markets and dwarfing competitors.

Controversial Pru chief executive Sir Peter Davis has made no secret of the fact that he is keen to tie up with a big High Street player. Halifax has stated it wants to link with a fund manager to diversify from savings and mortgages.

Davis is said to have begun his overtures after Halifax's recent announcement that chief executive Mike Blackburn will step down in January, to be replaced by James Crosby, a relatively unknown actuary.

But analysts believe a merger would not bring in additional profits.

Instead it could create extra costs and management chaos. …