Shares in HBOS rose by 13 per cent as investors meet today to vote on its proposed merger with Lloyds TSB.

Today's increase in HBOS's stock to 71.2p has closed the gap between the price that Lloyds TSB is offering to pay HBOS investors.

However, HBOS's shares are still trading at a 10.3 per cent discount to Lloyds TSB's bid for the troubled bank. Lloyds TSB shares remained unchanged at 131.8p.

Shareholders in Lloyds TSB will vote at an extraordinary meeting in Glasgow today and HBOS investors will vote on the deal next month to create a bank with 145,000 staff and 3,000 branches across the UK.

Investors are expected to vote today in favour of the deal after a last-minute warning from Alistair Darling, the Chancellor, that a rejection could prove costly to the owner of Halifax and the Bank of Scotland.

Mr Darling said access to the Government's proposed £37 billion bailout of the banking sector was not "automatic", a clear threat to the proposed rival bid from two senior Scottish bankers.

The Chancellor said there was "no automatic right of access to the recapitalisation scheme".

Sir Peter Burt and Sir George Mathewson suggested earlier this month that the Lloyds TSB deal should be rejected and HBOS should remain independent, take funds from the Government's bailout package and to be run by them.

Their approach has garnered some support in Scottish political circles but was deemed unlikely to succeed. The Financial Services Authority has indicated that, if the Lloyds TSB approach fails, HBOS might have to raise as much as £12 billion to stay in business.

While the deal is expected to go ahead, workers have staged demonstrations against the tie-up outside the Scottish Exhibition Centre where the meeting is being held.

Unions have expressed concern about whether job cuts will be made to reach the £1.5 billion worth of proposed cost savings from the merger.

Derek Simpson, joint general secretary of Unite, the union, said: “Employees from HBOS and Lloyds deserve to have their concerns heard at the shareholders' meeting. Along with the loyal customers, employees of Lloyds and HBOS are the life-blood of these banks.

“The protesters will demand that Lloyds shareholders do not merely consider the financial rewards of a takeover of HBOS, but the wider social and employment implications.”

As well as the HBOS deal, investors will also vote on plans to raise £5.5 billion through the issue of new shares and preference shares to strengthen its balance sheet.

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