Abbey owner Santander has made a takeover approach for Alliance & Leicester (A&L), the BBC's business editor Robert Peston has learned.

Shares in A&L have soared by more than 40% after it disclosed that it had received the approach, which would value the bank at about £1.3bn.

The bank, which has not yet confirmed the name of the possible buyer, said it Stars go Greek for Mamma Mia! ...
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Our correspondent says the deal may pose competition issues.

If successful, Santander plans to merge A&L with Abbey, which it bought in 2004.

"The takeover – if successful – would be a great relief to the City watchdog, the Financial Services Authority – because it believes big banks are more robust in these uncertain times," he said.

"However Alliance & Leicester has been a source of important competition in the UK's relatively concentrated banking market," he said.

"So there will be some concern that the disappearance of A&L as an independent entity would leave too much power in the hands of the big banks."

'No certainty'

A&L said the approach being discussed was for 317 pence per share - but it warned that it could not be sure that a deal would be "forthcoming".

Like other British lenders, Alliance & Leicester has seen its share price slump due to the credit crunch.

Alliance said it had disclosed details of the bid "without the consent" of the suitor.

It added: "There can be no certainty that an offer will be forthcoming or as to its terms."

Unlike other leading UK banks and mortgage lenders, Alliance & Leicester has not had to tap its shareholders for additional cash to shore up its balance sheet.

Alliance saw its annual profits fall 30% last year amid turbulence in credit markets, which has forced it to write down the value of mortgage-backed investments by nearly £400m.

Like other lenders, Alliance has reacted to the credit turmoil by reducing the number of mortgages it sells and pushing up the interest rates.

Following the news of the bid approach, Alliance's shares rose 93p, or 42%, to 312.25p. Shares in other lenders soared on the news, with Bradford and Bingley shares rising by more than 25%.

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(BBC)

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