Lloyds seals 12 bln stg deal for HBOS

British bank Lloyds TSB sealed a 12.2 billion pound ($21.7 billion) deal to buy HBOS Plc, to create a dominant mortgage and savings provider, encouraged by the government amid fears turmoil in financial markets would claim another UK victim.

Lloyds will offer 0.83 of its shares for each HBOS share, valuing them at 232 pence apiece based on Wednesday's closing price of 279.75p, a 58 percent premium over HBOS's last price of 147.1p.

The bank said it expects the deal to boost annual earnings by over 1 billion pounds a year by 2011 through cost savings and boost its earnings per share by over 20 percent a year.

Lloyds' Eric Daniels will remain as chief executive of the enlarged group and Victor Blank will stay as chairman.

The UK government said it intends to smooth regulatory approval of the takeover -- despite the enlarged group having a 28 percent share of mortgages -- "to ensure the stability of the UK financial system".

Lloyds said the combination will strengthen its ability to serve UK customers in current difficult markets. It follows a plunge in HBOS's share price in the last six days amid fears about its funding position.