LONDON (AFP) - Lloyds TSB has reached a deal to merge with HBOS, Britain's biggest mortgage lender, after the latter's shares plummeted for a third day running, British media reported Wednesday.

Sky News and the BBC said an agreement had been struck and would likely be announced before markets open in London Thursday. The BBC said Lloyds TSB would take over the lender at 232 pence per HBOS share.

HBOS had earlier confirmed that it was in "advanced talks with Lloyds TSB Group plc which may or may not lead to an offer being made for HBOS."

Neither bank would comment on the reports of a deal, which would create a British retail banking giant. Reports suggest the British government would waive competition rules to allow the merger to go through.

The uncertainty over HBOS -- the parent company of Bank of Scotland and the Halifax bank -- follows the bankruptcy of US investment bankLehman Brothers which continues to send shockwaves through financial markets.

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