Alliance & Leicester said today it was in advanced talks about a possible takeover of the banking group.
Shares in Alliance & Leicester (A&L) jumped by more than 40% as it said the potential offer valued the business at 299p a share, equivalent to £1.25 billion.
A&L did not disclose the identity of the potential buyer. But a possible suitor for A&L could be Spanish banking giant and Abbey owner Santander, which is thought to have held discussions with the group last year.
In 2006 France's Credit Agricole said it was considering a potential takeover but instead launched an offer for Greek lender Emporiki.
The potential offer talks come as the group struggles with the financial impact of the credit crunch, which has seen A&L relegated from the FTSE 100 Index this year.
In May, the bank said it was funded into the second quarter of 2009, but warned the deteriorating value of its assets had cost it almost £400 million in the first four months of this year.
Alliance & Leicester can trace its origins back to 1852 and the formation of the Leicester Permanent Benefit Society. It demutualised in 1997, joining the FTSE 100 Index.
The company has also seen board upheaval this year alongside the financial turmoil. The group appointed Alan Gillespie as chairman last week after previous incumbent Sir Derek Higgs died in April.
Santander was identified by the BBC as A&L's suitor, although such a tie-up may provoke competition concerns due to the Spanish bank's ownership of Abbey.
A&L has more than 5.5 million personal customers and at the end of April held £23.6 billion in deposits.
Although lenders such as buy-to-let specialist Bradford & Bingley have seen sharp rises in arrears, in its last update A&L said its loan quality remained strong, with 2,650 of its 462,270 mortgage accounts more than three months behind, or 0.57% of the total. This is well below the industry average.
Before today's surge, shares in A&L had fallen from highs of more than £12 in May last year to a low of 211p earlier this month as the global crisis hammers banking stocks.
As well as the 299p-a-share potential offer for the company, investors would also receive an 18p a share interim dividend, making the total value of the approach £1.33 billion.
In February, the bank reported core operating profits of £417 million for 2007, down from £585 million the previous year. Pre-tax profits dropped £170 million to £399 million.