The acquisition has come about, in part, through government pressure to protect HBOS savers and borrowers.
The takeover deal for HBOS has been announced.
Under the terms of the government-backed merger, Lloyds TSB will take control of Britain's largest lender. The share-only deal values the firm at the fire-sale price of £12.2 billion, testifying to the dire financial conditions currently being experienced in the UK banking sector.
HBOS stock has seen days of falls, and has lost around 75 percent of its value since the beginning of the year. At one point yesterday, its shares were even trading at 50 percent below their previous closing price on Tuesday.
This trend is because of market suspicions that the firm was undercapitalised, and was therefore having difficulties in raising money to meet its costs. In this way, the devaluation of HBOS stock was similar to the declines of US investment banks Lehman Brothers and Merrill Lynch on the markets last week - prior to both going out of business at the weekend.
Therefore, it is likely that the government - mindful of the huge political and financial cost which would come with the collapse of the UK's largest mortgage lender and savings provider - intervened to help with a takeover deal for HBOS.
"This will be a unique opportunity to accelerate and extend our strategy and create the UK's leading financial services group," said Lloyds chairman Sir Victor Blank.
HBOS chairman Dennis Stevenson added: "This is the right transaction for HBOS and its shareholders."
Thousands of jobs in the UK could be lost as the two firms consolidate their operations.
