UK mortgage bank Abbey National has begun possible merger discussions with the Bank of Scotland which, if successful, would create a company worth around £23 billion ($33bn).

Abbey is believed to have made the approach last week, and chairman Lord Tugendhat has since discussed a possible deal with BoS governor Sir John Shaw.

However, negotiations are still at a very early stage. The banks’ advisers have been holding preliminary discussions as a precursor to meetings between executives.

Success would provide some consolation for BoS, which lost a battle for NatWest last year. However, Abbey is believed to want to mould the deal as a takeover of BoS.

Both banks have declined to comment.

News source: Financial Times