Doubts raised over OFT approval for Halifax and BoS merger deal

Traders were betting that the Bank of Scotland and the Halifax might become takeover targets yesterday, after the Office of Fair Trading extended its routine inquiry into their proposed nil-premium merger.

The OFT's application for a two-week extension is not that unusual in takeovers, but in some quarters of the City it raised doubts over whether approval for the proposed tie-up was as likely as previously supposed. One analyst said: "The market seems to think that if the deal is blocked, that would pave the way for a takeover, which would be better than a nil-premium merger."

Halifax firmed 12p at 818p, while shares in BoS were up 11p at 816p, bucking a downward trend among other financial stocks in yesterday's session.

The OFT's verdict on the merger will come after Patricia Hewitt, the Secretary of State for Trade and Industry, passes judgement on Lloyds TSB's proposed purchase of Abbey National. Her announcement is expected on 10 July.

Both Halifax an BoS insisted yesterday that their merger, to create HBOS, would increase competition in the UK banking by creating a "fifth force".

The OFT has a statutory 20-day window to review mergers, with a standard extension of 15 days. One analyst said: "Extensions have almost become a habit. It's as if the OFT wants to show it's got a lot of work to do."