Lloyds seals rescue deal for HBOS

By Steve Slater

LONDON (Reuters) - Lloyds TSB rescued Britain's biggest mortgage lender HBOS on Thursday in a 12 billion pound takeover as the government swept aside competition rules to ease the deal through.

The takeover, sanctioned personally by Prime Minister Gordon Brown, came as banks around the world staggered under the weight of a credit crisis.

Lloyds Chairman Victor Blank said the deal went ahead after Brown told him at a reception on Monday night that the combination would not be blocked on competition grounds.

"The transaction could have only happened if the government was prepared to give support in relation to competition issues," Blank said at a news conference. "What the prime minister said on the night to me was the government would give that support."

The combined bank will control about a quarter of UK current accounts and 28 percent of home loans.

A plunge in HBOS shares in recent days had raised fears the credit crunch might claim another UK victim after the government bailout of Northern Rock bank earlier this year.

Lloyds will offer 0.83 of a share for one HBOS share, valuing them at 232 pence based on Wednesday's closing prices, or a 58 percent premium. That valued HBOS at 12.2 billion pound, only a quarter of its value a year ago.

HBOS shares jumped 17 percent to close at 172.6p, but Lloyds shares fell 15 percent to 237.5p, cutting the value of the deal to 197p per HBOS share.