Halifax Bank of Scotland’s (HBOS) £12 billion rescue deal with LloydsTSB has been thrown into uncertainty because of the bank’s request for an emergency capital injection from the government.

The deal between HBOS and Lloyds, which was brokered by Gordon Brown, was based on the value of the banks’ shares at the time it was arranged three weeks ago.

However, since then the financial markets have fallen dramatically leading to a halving in HBOS’s value. By comparison Lloyds’ shares have fallen by only a third, making its shareholders comparatively worse off if the deal goes ahead.

The value of HBOS’s shares is expected to dive even further this week once it asks the government for an estimated £10 billion to strengthen its balance sheet.

The government will get shares in the bank in return for its investment with some estimates suggesting that the Treasury could end up owning 70 per cent of HBOS.

This would devalue the stakes held by remaining shareholders, making the terms agreed by Lloyds three weeks ago untenable.

If the Lloyds deal collapses the government could be forced to fully nationalise HBOS, the UK’s largest mortgage provider, to prevent its collapse.

The government has already taken Northern Rock and Bradford & Bingley into state ownership but HBOS, which employs 72,000 people, would be the largest full nationalisation in decades.

Rumours spread last night that the deal had collapsed but both HBOS and Lloyds moved swiftly to deny it.

A spokesman for Lloyds said: “We continue to progress the proposed acquisition of HBOS and management are working on all aspects of the deal.”

However, banking analysts believe that Lloyds will push to renegotiate the terms this week given HBOS’s weaker position.

Under the current offer HBOS shareholders will receive 0.83 Lloyds TSB shares for every one share they hold. If the deal does go ahead it will create a bank that would control nearly one third of all current accounts in the UK.

Large shareholders in Lloyds have told The Times that the rapid deterioration in HBOS’s value makes it impossible for them to accept a deal that was brokered in September.

HBOS’s decision to dilute its shareholding further by taking the government’s capital injection will make it seem even less appealing. That means that even if Lloyds’ management does pursue the existing deal it could be blocked by shareholders voting against the proposal.

Times Recommends

• Minister in talks with Saudis to protect creditors
• Premier Inn hits back in £29-a-room row
• Bankers hit back at 'populist' bonus supertax