The underwriters in HBOS received a boost yesterday as shares in Britain's largest mortgage lender surged amid market rumours of a possible takeover approach by BBVA, the Spanish bank.

The speculation came after the closure of one of the City's least popular capital-raisings on Friday. Dresdner Kleinwort and Morgan Stanley, the underwriters, had been left with about £2.5 billion of unsold stock on their books after existing HBOS shareholders bought only 8.2 per cent of the1.5 billion new shares offered at 275p.

With HBOS shares initially mired below the 275p rights issue price after the closure of the fundraising, the underwriters were facing paper losses of £100 million. However yesterday's price rise helps their cause. The takeover talk moved shares in HBOS almost 17 per cent higher to 285.9p.

At yesterday's prices HBOS was worth about £15 billion while BBVA was valued at €46.3 billion (£36.8 billion). Both banks declined to comment but sources close to BBVA were dismissive of the rumours. BBVA shares closed up 0.48 cents at €12.41.

A deal to take on HBOS would be a radical departure for BBVA. Spain's second-largest bank, which serves 35 million customers, is focused on the Spanish and Latin American market. It has only three branches in London.

The rumours come a week after Santander, another Spanish banking giant and owner of Abbey, agreed a deal to buy Alliance & Leicester, the mortgage lender, for £1.26 billion.

HBOS's capital-raising, which will boost the bank's core equity Tier 1 ratio - a measure of financial strength - from 5.7 per cent to between 6 per cent and 7 per cent, proved even less popular than Barclays' £4.5 billion cash call the week before, in which only 19 per cent of investors participated.

HBOS's shares were trading 20p below the 275p subscription price in the days before the offer closed.

There were wider gains yesterday for the UK's banks amid hopes that the gloom afflicting financial institutions had bottomed out. Royal Bank of Scotland and Barclays both rose by more than 11 per cent.

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