At least 10 City advisory teams have been told to suspend work on deals in the pipeline until the High Court decides whether to approve the Lloyds-C&G merger.
Northern Rock, Leeds Permanent and Cheshire Building Society are all retaining City advisers in case of approaches from institutions. Deutsche Bank held bid talks with Northern Rock six months ago but the deal fell through. Skipton and Bristol & West are also subjects of speculation.
The Building Societies Commission is presenting its objections to the Lloyds-C&G deal in a two-day High Court hearing beginning on Monday, the results of which will not be known for several weeks.
The BSC is claiming that cash payments to members by a third party, in this case Lloyds, are against the Building Societies Act.
Uncertainty over the fate of the proposed Lloyds merger heightened following reports that the Treasury will bring legislation to ban future cash-rich bids for building societies.
The Treasury appears to be influenced by the BSC, which views the cash payments to C&G members by Lloyds as a bribe, but would not comment yesterday.
Geoffrey Lister, who yesterday stepped down as the Building Societies Association chairman, said that when Parliament passed the Building Societies Act it was meant to protect societies from savers who moved their money around in order to take advantage of potential bids. It did this by insisting that investors had to have been with a society for two years to receive the proceeds of a takeover from any organisation, apart from another society.
In his address to the association's annual conference in Birmingham Mr Lister said he did not expect a rush of other societies to follow the C&G lead.
'There is room for differing types of financial institutions and, while I wish the C&G and Lloyds well and acknowledge the possibility of one or two similar link-ups, I do not believe that most societies will wish to go down that route,' he said.
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