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Santander Takeover Hopes Boost A&L Shares

Shares in British mortgage bank Alliance & Leicester jumped over 15 percent on Wednesday after news that it had held tentative takeover talks with Spain's Santander last month.

A&L, one of the worst performing U.K. bank stocks last year, was up 15.4 percent, valuing the mortgage lender at just over 3.1 billion pounds ($6.15 billion) -- above recent lows but still almost half its 2007 peak of 5.9 billion pounds.

Santander shares were trading down 1 percent.

A source familiar with the matter, confirming news reports, said on Wednesday the two banks had held talks but negotiations faltered in mid-December when they failed to agree a price.

The Financial Times, however, quoted people close to the Spanish bank as saying Santander had not ruled out resuming negotiations or making an improved offer.

In an interview with the FT on Monday, Santander Chairman Emilio Botin said the Eurozone's largest bank, which already owns U.K. high street bank Abbey, wanted to grow in Britain and the United States and was looking for buying opportunities.

Santander has in the past expressed an interest in UK corporate rather than mortgage lending, but analysts said the deal could prove too good to miss.

"The price of A&L is now cheap, and Santander is opportunistic on acquisitions," analyst Alberto Cordara at ABN Amro said on Wednesday.

"The Santander decision-making process boils down to one word, which is Botin. If the guy decides to do it, he does it."

Ready for a Deal?

With sentiment towards Britain's mortgage banks battered by the fallout of the credit crunch and the near collapse of peer Northern Rock, A&L lost more than 40 percent of its market value in 2007.

"Santander must think (A&L) is very cheap right now," Hector Martinez, banking analyst at the Venture consultancy in Madrid, said.

"Santander has cash, and its shares are in a comfortable position ...They're in good shape to think about an acquisition."

Santander is considered relatively strong as the credit market fallout hits the sector. It was one of three banks that split Dutch peer ABN Amro in the biggest-ever banking takeover, but since the deal Santander has already netted 2.4 billion euros from the sale of Antonveneta, part of its share of the Dutch spoils.

A&L, Britain's seventh-largest bank, has long been seen as a takeover target. Often-named predators include Santander, as well as France's Credit Agricole and Australia's NAB. Credit Agricole said in 2006 it was considering making an offer but later opted for a Greek deal.

Credit Agricole declined to comment on Wednesday on whether it remained interested in A&L, but a source familiar with the matter said the French bank was unlikely to make a takeover offer amid the current market uncertainty.

"A&L is interesting for anyone wanting to grow in the UK, but it's not a must-do deal," one London analyst said, adding A&L's steep share drop in recent months could make it hard for the two sides to agree on a price.

Shares in Bradford & Bingley, another small mortgage bank frequently named as a target, rose 4.5 percent on Wednesday on hopes it could also benefit from takeover interest.

Santander and A&L declined to comment on news of the talks.