A&L shares surge on Santander bid talk

The shares jumped 7 per cent to closer 78p up at 1,200p, valuing A&L at almost £5bn, amid suggestions that the Spanish may be prepared to pay the 1,500p per share that A&L's chief executive, Richard Pym, is thought to be looking for.

In March, he rejected an informal approach worth 1,300p a share from Crédit Agricole, France's biggest bank. Then, as yesterday, A&L refused to comment on what it characterised as "market speculation".

Santander too remained tight-lipped. Emilio Botin, its chairman, has made no secret of his desire for a bigger presence in Britain. He had been widely expected to turn his attention to A&L once his bank has digested Abbey, which it bought for almost £9.7bn in 2004.

More recently, however, Mr Botin has steered leading shareholders towards the view that Santander would not be interested in acquiring another mortgage bank.

It would instead look for different types of financial businesses to build a more diverse bank to take on Royal Bank of Scotland, HSBC, Lloyds and Barclays on the high street.

But Mr Botin is known to be an opportunistic predator. Last year, Spain's biggest bank shelled out $2.4bn (£1.3bn) for 19.8 per cent of the Pennsylvanian lender Sovereign Bancorp only days after senior managers had indicated to major investors that Santander was not interested in an acquisition in America.

Earlier this week, Santander confirmed that it has entered exclusive talks to sell Abbey's life insurance business to Resolution, a closed insurance fund specialist. Should the sale proceed, Santander will have at its disposal an estimated £4bn with which to make an acquisition.

Should that acquisition be A&L on top of Abbey, the Spanish would control about 15 per cent of Britain's outstanding mortgages, closing the gap on market leader HBOS, which has 22 per cent. Cost savings from combining the two lenders would be considerable.