Standard Life Investments threw its weight behind the controversial £12 billion rescue takeover of HBOS by Lloyds TSB yesterday, signalling that it was prepared to vote in favour of the deal in its current form.

The message of support from the City heavyweight came as HBOS shares soared by 21 per cent to 148.1p, while Lloyds was up 10 per cent to 250p. That reduced the discount at which HBOS shares sit relative to the value of Lloyds’ offer from 35 per cent to 29 per cent.

Analysts said that the gap still implied there were significant doubts that the deal could be done at the terms set out two weeks ago.

Brewin Dolphin, another top-20 shareholder in Lloyds, also came out in support of the deal after Lord Stevenson and Andy Hornby, HBOS chairman and chief executive, paid it a visit yesterday morning.

Charlotte Black, head of corporate affairs at Brewin, which holds £106 million of Lloyds stock on behalf of clients, said: “They made a very compelling case for the merger. We’re supporting it.”

With ministers, regulators and HBOS determined to push through the deal on the current terms, there were few Lloyds shareholders willing to express their doubts publicly.

Aruna Karunathilake, who runs Fidelity’s £294 million top-performing UK Aggressive Fund, which owns Lloyds shares, said that he was still weighing up the proposal. While the combination could be a fabulous deal for Lloyds, it did appear to increase the funding risks, he said.

Anthony Bolton, president of investments at Fidelity, which overall has similar-sized stakes in both Lloyds and HBOS, said that he believed that the deal was attractive.

Other shareholders privately expressed doubts to The Times. One common complaint was that they had bought into Lloyds because of its conservative strategy and its high dividend. Both would be jeopardised by the combination.

Sources said that Standard Life, a substantial shareholder in both banks, believed that the deal made economic sense and had to go ahead to ensure the stability of the UK financial services sector.

Tinkering with the terms would be irrelevent for many shareholders who own roughly comparable slices of each institution.

One substantial investor in both banks said: “This kind of deal doesn’t come along very often; 18 months ago it would have been rejected out of hand on competition grounds. Assuming that it goes through, this would be a clear market leader with strong margins in mortgages, deposits and savings.”

Advisers to HBOS are hoping that the competition rules waiver – “the forbidden fruit factor”, according to one – would persuade Lloyds shareholders to swallow their doubts and approve the deal.

However, advisers to Lloyds are thought to be ready to start work on contingency plans to demand a sweetening of the terms in a few weeks’ time if due diligence uncovers any deterioration in HBOS’s trading position.

Just hours before the takeover was announced two weeks ago, Lloyds wrested better terms from HBOS because of its weak negotiating position.

The vote on the takeover is still almost two months away and any deal would not be completed until the end of this year or early next year.

Standard Life is the fourth-largest investor in HBOS, with a 3.07 per cent stake worth £239 million based on last night’s closing share price, according to Thomson Reuters.

It is the eighth-biggest holder of Lloyds TSB, with a 1.43 per cent stake worth £212.75 million, according to figures from the data provider.

Another investor in both banks said yesterday: “It is the deal of the century for Lloyds TSB. I can’t believe that they will be able to reprice it.”

The discount means that investors in both banks who are confident that the deal will be completed can make a 29 per cent return in three months, or an annualised 116 per cent, by selling Lloyds shares and buying HBOS ones.

Passive index funds owning a large chunk of both banks are likely to support the deal automatically.

Sir Brian Pitman, a former chief executive of Lloyds, told the BBC: “It’s important the deal goes through and I’m confident it will go through. This business is in the hands of very, very capable people.”

Europe acts quickly

The Government’s rescue plan for Bradford & Bingley was approved in record time by European regulators yesterday, the green light coming just 24 hours after details of the bailout package had been sent to Brussels.

Under the measures, the bank is being nationalised and wound down, its retail deposit book and branches being sold to Abbey National and the Treasury is providing a working capital facility.

The Commission considered that parts of the package amounted to state aid but could be authorised provided they were in place for no more than six months. However, the rescue is certain to take longer and a more critical view can be expected when the Government submits the more substantive plan, which it must do by March 29.

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