The proposed bailout of HBOS, the owner of Halifax and Bank of Scotland, was called into question when shares in the stricken bank fell sharply again yesterday.

HBOS has been hit hard by the collapse in the stock market and is now worth about £4 billion less than Lloyds TSB has agreed to pay for the group.

Lloyds TSB made a rescue bid for its rival last month, with the Government’s blessing, amid doubts over HBOS’s ability to survive the collapse in the housing market. Some investors have expressed concern, however, that Lloyds TSB is paying too much and that its own prospects could be harmed.

With HBOS shares falling another 14 per cent to 122.4p yesterday, Gordon Brown sought to reassure investors, insisting that the bailout would go ahead. Eric Daniels, Lloyds TSB’s chief executive, appealed to shareholders to support the takeover. “Market conditions are obviously difficult, but the acquisition of HBOS remains a fantastic opportunity to create the UK’s leading financial services group and to create great value for both sets of shareholders,” he said.

The bank said that its board was not trying to renegotiate the price of the deal, even though HBOS shares were worth 30 per cent less yesterday than Lloyds has promised to pay for them.

It is understood, however, that if a significant number of Lloyds shareholders revolt against the merger, the bank would renegotiate. People close to Lloyds said that political pressure made it extremely unlikely that the deal would fail, but some shareholders have privately suggested that the takeover was not a foregone conclusion.

The fall in HBOS’s shares to a record low came after an 18 per cent decline on Monday. One big investor in HBOS and Lloyds TSB told The Times: “The market is telling you the deal will just not go ahead in its current form.” Another investor said: “There is something about this deal that has never quite hung together. It started to look potentially overambitious when analysts began to circulate very large numbers for the amount of additional capital that Lloyds TSB might need.”

HBOS and Lloyds face a demanding shareholder ballot in which 75 per cent of those who vote must approve the merger, although the banks will be helped by the fact that 50 per cent of shareholders own shares in both companies and so have a vested interest in approving the deal.

Shareholders in both banks are due to vote on the merger next month. Sources close to both banks insisted that the Government’s involvement would ensure that the takeover went ahead.

However, City analysts argued yesterday that the deal could yet be renegotiated, saying that it did not make financial sense for Lloyds. Alex Potter, a banking analyst with Collins Stewart, said: “If I was a Lloyds shareholder, I would say no.”

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