HBOS, the soon-to-merge owner of Halifax and Bank of Scotland, today revealed that the value of its assets plunged by £2.7 billion in the third quarter, taking the embattled bank's total charge for the year to £5.2 billion.

Collapsing commercial property markets largely prompted a £1.25 billion writedown on the company's business loan book.

HBOS said that an increasing number of business customers were "operating under stressed conditions" with "construction and real estate sectors...impacted more severely".

Lending to property-related businesses accounted for 60 per cent of the write-off.

HBOS also lost £732 million during the quarter on its trading book, including £457 million from its exposure to Lehman Brothers, the collapsed US investment bank, and stricken Washington Mutual.

A further £150 million hit is expected on trading conducted with Iceland's crisis-hit banks.

The bank issued an update as Lloyds TSB revealed plans of its proposed merger with HBOS, including the new name of the bank — Lloyds Banking Group.

However, it is not certain that the merger will go ahead after it emerged that Jim Spowart, former chief executive of HBOS's Intelligence Finance division, was considering making an offer for the group, and has been approached by a foreign suitor about possibly brokering a deal.

HBOS said today that its takeover by Lloyds TSB remained on track, and made no mention of a possible counterbid from Mr Spowart or any other party.

It said that its deposit levels are stabilising, following outflows in September and the first half of October, before the government-backed £11.5 billion rescue of the bank by Lloyds was announced. Those outflows have since "slowed siginficantly." Shares in HBOS rose 3.7 per cent to 103p.

Impairment charges relating to mortgage lending increased by £524 million, and the bank said that the increase was as expected, given the recession in the UK economy.

Homes in arrears accounted for 2.1 per cent of HBOS's total mortgage lending, compared with 1.95 per cent in June and 1.67 per cent at the beginning of the year.

The impairment on secured mortgages was up to £440 million from £213 million in the third quarter, while the unsecured loan charge increased to £806 million from £509 million, with the latter figure at a level below last year.

Further charges, including a £389 million hit on losses from joint ventures and investments, took the total incurred in the quarter to £2.7 billion.

HBOS plans to sell £11.5 billion in shares to boost its capital base, selling £3 billion of preference shares to the Government, and offering a further £8.5 billion in a government-underwritten issue in January. The preference shares will pay a dividend of 12 per cent.

In a trading statement, HBOS said that its problems reflected the fact it was operating "in difficult market conditions".