Banking world suffers new swirl of rumours

Speculation about a fresh wave of mergers in the banking sector grew yesterday with rumours that Lloyds TSB was targeting Abbey National, currently in talks with the Bank of Scotland, while an Australian bank is targeting Alliance & Leicester.

The planned merger between Abbey National and the Bank of Scotland has hit rough water since they were forced to reveal their discussions in early November. The sticking point is said to be over who would get the top job at the combined operation.

Lloyds TSB declined yesterday to comment on reports in the Sunday Times that it planned a counter-bid for Abbey if the former building society bids for Bank of Scotland. The report suggested that Lloyds would offer Abbey shareholders a sizeable premium which might prove more tempting than Abbey draining its coffers to acquire Bank of Scotland. Some analysts have suggested that National Australia is also interested in snapping up Bank of Scotland, but weekend reports suggested its objective was Alliance & Leicester, one of Britain's smallest mortgage banks.

The highly acquisitive Sydney based bank, already Australia's largest, was tipped as a player in the consolidation of middle-sized British banks last week when it sold a US bank, Michigan National, for $1.1bn. Chief executive Frank Cicutto said it would use some cash to expand in Britain and Ireland, where it already owns four banks.

"What is definite is that we will use part of the funds from the Michigan National sale to pursue organic growth in the UK, and that's a real live opportunity for the National," Mr Cicutto said last week.

NAB is thought to be planning an agreed £4bn cash-and-shares merger with the A&L, with the new group listed in London and Sydney.