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Halifax, BoS agree merger
May 4, 2001: 5:45 a.m. ET

Mortgage lender, Bank of Scotland to merge, creating No. 5 UK bank
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LONDON (CNN) - Halifax, the U.K.'s biggest mortgage lender, said on Friday it agreed to merge with the Bank of Scotland to create the country's No. 5 bank.

The mortgage lender will be in the driving seat with a 63 percent stake in the new bank, valued at £28 billion ($40 billion) based Thursday's closing share price. The deal is effectively a £10.3 billion takeover by Halifax.

Some 2,000 jobs will go over the next three years as costs are reduced by £305 million, and revenue is boosted by £315 million, the banks said. The merger marks the next step in a consolidating cut-throat UK banking sector.

The combination of Halifax and Scotland's second-biggest bank ends a period of uncertainty for the Bank of Scotland, which has seen the rug pulled out from under its feet in two previous merger attempts.

The Bank of Scotland, established in 1695, first sought to merge with National Westminster Bank, but NatWest opted to merge with the Royal Bank of Scotland.

Its second attempt fell apart after Abbey National, Britain's No. 2 mortgage lender, broke off talks after strong overtures from Lloyds TSB. The U.K. government is currently considering that combination.

The combined might of the two banks provides a challenge to the U.K.'s four biggest banks Lloyds-TSB (LLOY), Royal bank of Scotland (RBOS), Barclays (BARC) and HSBC Holdings (HSBA), the banks said.

The banks announced they were in talks late last month that would see them exchange shares on a one-for-one basis, giving shareholders no premium for backing the combination.

The Bank of Scotland gets access to funds to grow its corporate banking business and sell its services through the Halifax's network in England and Wales.

The Halifax under the stewardship of Chief Executive James Crosby is moving away from its traditional dependence on the lower-margin mortgage market. The Halifax has diversified towards more profitable long-term savings products.

The two banks will continue to operate under their current band names but a new holding company, called HBOS, will be created for the purpose of the merger.

The Bank of Scotland's Edinburgh, Scotland, headquarters will continue to run the combined group's corporate banking business. Retail banking will be based in Yorkshire, central England.

The Bank of Scotland's chief executive Peter Burt will be executive deputy chairman and take on the responsibility of integrating the banks. Burt will step down from the executive role once the combination is completed.

Halifax's Crosby becomes the chief executive of HBOS and Lord Stevenson, the Halifax chairman, will be chairman. HBOS will be headquartered in Edinburgh. graphic