Lloyds Bank is expected to include special provisions in a takeover of the TSB to protect the position of charities that are the single largest shareholders.
The TSB Foundations have 5 per cent of the group's capital in the form of limited voting shares, which entitle them to 1 per cent of pre-tax profits, averaged over three years.
The foundations were set up to replace the local charitable activities of the old Trustee Savings Banks. They are the only link with the 19th- century savings banks, which were amalgamated in the 1970s to form the banking group eventually floated as the TSB in 1986.
The TSB refused to say what would happen to the charitable activities except that their position would be "fully reflected" in the details of the proposed merger. Lloyds Bank refused to comment but said that it was a member of the Percent Club, and voluntarily donated 0.5 per cent of profits to charity. The TSB's charities have received pounds 17m from the group since flotation, a low figure reflecting the bank's poor performance.
For more than 150 years, the TSB had been no more than a loose grouping of savings banks, which, until the Sixties, did nothing but take deposits from the public and invest them in government debt. They were governed by self-perpetuating boards of local trustees and supervised by the Treasury.
In 1973, a government committee recommended turning them into full service banks, leading two years later to a merger of the 72 that remained into 20 banks. By 1983 that figure was down to four.
The TSB's were not owned by the government nor by their depositors - a fact that was established after a lengthy legal wrangle ending in the Lords, which decided that there were no owners, so all the proceeds of the flotation were kept by the bank. As many had predicted, the TSB used its unaccustomed wealth for a splurge of unwise acquisitions, of which the most spectacularly bad was the pounds 777m purchase of Hill Samuel in October 1987.
The bank that liked to say yes became a byword for poor management and confused strategy, until Peter Ellwood, the new chief executive, decided to go back to the basics of retail banking and insurance.