Shares in HBOS plunged nearly 20 per cent as investors voted in favour of a controversial merger with Lloyds TSB, after the embattled lender this morning revealed £8 billion in bad debts and charges for mortgage, loan and business arrears.

At a rain-soaked emergency meeting in Birmingham, HBOS said that "a significant majority" of shareholders had backed the combination, as well as an £11.5 billion cash call, in a deal personally brokered by Gordon Brown.

The bank said that the total number of proxy votes received was the highest ever for an HBOS shareholder meeting, representing more than 56 per cent of the company's issued share capital by value.

However, HBOS, which owns Halifax and Bank of Scotland, saw its shares plunge 19.8 per cent, or 17.5p, to 70.1p while Lloyds TSB tumbled 17.72 per cent to 130p, adding to earlier falls after the struggling lender detailed a long list of bad debts and charges.

HBOS said its impairment charges and bad debts had risen by £3.2 billion since the end of September.

Its impairment charge for mortgage borrowers falling into arrears had risen more than threefold since June to £700 million this year as increasing number of homeowners struggled to meet their repayments.

The total amount the bank is setting aside for bad loans and charges is now £8 billion, up from £4.2 billion at the end of September.

Nevertheless, an upbeat Eric Daniels, chief executive at Lloyds TSB's, said: "We are very pleased that HBOS shareholders have given a strong vote of confidence for the proposed acquisition, and that they will be in a position to share in the benefits as we create the UK's leading financial institution."

Sir Victor Blank, the chairman, added: "We are delighted that HBOS's shareholders, mirroring Lloyds TSB's shareholders, have demonstrated their support for the compelling business opportunity this acquisition presents.

With both sets of shareholders behind us, we look forward to completing the transaction in mid-January 2009 to create the newly named Lloyds Banking Group."

Last month, Lloyds TSB shareholders gave their approval for the merger and a £5.5 billion capital raising by the bank. Lloyds TSB said today that it was now in a position to begin that process.

The deal has already overcome a rival bid by bank executives Sir Peter Burt and Sir George Mathewson to take control of HBOS. And earlier this week, the Competition Appeal Tribunal through out a legal challenge from six Scottish businessmen.

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