An audacious plan by two Scottish knights to derail the Lloyds TSB takeover of HBOS and install themselves at the helm of the struggling bank appeared to be losing momentum last night. Institutions holding HBOS shares questioned the logic of the surprise weekend proposal from Sir Peter Burt and Sir George Mathewson to keep HBOS as a standalone business.

Regulators are understood to be nervous that the plan could cause uncertainty in the banking system just as the Government’s bailout scheme was starting to restore stability.

The HBOS share price was marked as much as 9 per cent higher at 113.4p in early trading amid hopes that the duo could help to flush out an alternative plan or at least force Lloyds to sweeten its terms. By the market close, the price had faded back to 107.7p.

Sir Peter, a former chief executive of Bank of Scotland, and Sir George, a former chairman of Royal Bank of Scotland, surprised the City with their accusations that a traumatised and fatigued HBOS board was perversely pursuing a poor deal for shareholders.

They called for Lord Stevenson of Coddenham and Andy Hornby, the chairman and the chief executive, to stand down and threatened, if they refused, to canvass shareholders to have them sacked. HBOS shareholders were unimpressed yesterday. One big institutional investor said: “There is no offer, no backing, no plan. We’re not taking it remotely seriously. It’s a nonevent.”

Another shareholder said, “There is no interest [in the proposal]. This is designed to pacify the Scottish lobby and show that they have tried. It’s a joke.”

Neither the Bank of England nor the Financial Services Authority is likely to look favourably on the intervention. In submissions to the Office of Fair Trading, they said any delay to the Lloyds deal could weaken confidence in the banking system and only the Lloyds deal would give a sustainable medium-term future for HBOS.

HBOS officially dismissed the plan, writing to Sir Peter and Sir George saying that they had failed to describe any specifics in their plan, nor had they set out a value proposition for shareholders. “Accordingly, the board has unanimously concluded that your letter does not form the basis for any further discussion between us,” it said.

Analysts were divided. Collins Stewart said that Lloyds appeared to be taking over HBOS “very cheaply” and that, if the Government provided rescue cash for HBOS without insisting on the Lloyds deal, HBOS could be viable on its own. Credit Suisse, which is advising the Treasury, said HBOS alone would struggle to win deposits and would have to raise more capital, perhaps £15.5 billion, against £11.5 billion envisaged in the Lloyds plan.

Meanwhile, Bank of China emerged yesterday as the mystery potential bidder behind a separate plan to bail out HBOS. The Bank of China, of which RBS, the Scottish bank, owns 4.5 per cent, was named by the BBC as the partner in a bid being orchestrated by Jim Spowart, the Scottish banker.

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