AIG bailout and HBOS trouble.

The US Federal Reserve, which is America's central bank, threw a lifeline and saved one of the world's biggest insurance group, American International Group (AIG), from collapse by lending it $85 billion, which would have to be paid back over two years at a high interest rate. Just recently, the US Government took over the US mortgage giants Fannie Mae and Freddie Mac in a deal which is reported to be worth around $200 billion.

In Britain, media reports are emerging about banks Lloyds TSB and HBOS being in the advanced stages of a possible merger deal or even a takeover of HBOS by Lloyds TSB. According to the Council of Mortgage Lenders, should this deal go ahead, it would create a lender which would have a 28% share of the mortgage market in the U.K. Currently, HBOS has a 20% share of the U.K. mortgage market whereas in comparison, Lloyds TSB have only 8%. Back in Frebruary of this year, Lloyds TSB was interested in taking over the troubled bank Northern Rock, but the Government were reluctant, and Northern Rock has been nationalised since. Looking at the current state of the markets, its seems unlikely that the Government will create any obstacles in this deal. On the contrary, according to the BBC, the Treasury and the Financial Services Authority are infact encouraging the deal so as to prevent any more turmoil in the banking sector.

HBOS was formed by the merger of Halifax Plc. based in Yorkshire and Bank of Scotland based in Edinburgh back in 2001. HBOS's main source of revenue is from its mortgage products, but with the current increase in repossession of properties due to default payments and the drop in house prices, HBOS will be left with properties worth less than the mortgage secured against them and hence, with little left in its pockets.

It will be interesting to what happens to this proposed deal.

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