Alliance & Leicester (A&L) bank shareholders will meet later to vote on the proposed £1.3bn takeover by Spain’s Banco Santander.

The vote will take place as the shockwaves from the collapse of of the 158-year-old Wall Street giant Lehman Brothers reverberate worldwide.

Last month A&L sent a letter out to more than 560,000 shareholders urging them to support the deal.

A&L considers that its prospects as an independent entity are not good.

Merger plan

The bank’s shareholders will convene at Birmingham’s International Convention Centre later.

They are being offered one Santander share for three A&L shares as part of the planned takeover offer which was announced in mid-July.

If the deal takes place as planned this October, then A&L will be merged with Banco Santander’s existing UK subsidiary, Abbey.

This will create a much larger bank with 959 branches and 10% of the UK’s bank current accounts.

With the credit crisis wiping out most of A&L’s half-year profits and the continued high cost of securing funding in the wholesale markets, the bank’s board is keen to insulate itself against a worsening economic backdrop.

Its shares ended 6% lower on Monday after a series of dramatic developments on Wall Street hit confidence in the UK banking sector.

News reported by The BBC

Richard Pym, the former head of Alliance & Leicester who was yesterday confirmed as the new chief executive of Bradford & Bingley, is to be paid £2.25m by next summer as he attempts to bring the beleaguered bank back on track.

B&B revealed his basic salary will be £750,000 per year with a guaranteed £750,000 bonus and the same value in B&B shares by next July. He will also be handed a large share options package.

Mr Pym, who left A&L in July 2007 after 15 years, is locked into a contract at B&B for a minimum of two years. He must also provide a full 12 months notice should he wish to leave after that.

B&B chairman, Rod Kent, who has been running the bank since Steven Crawshaw stepped down in June complaining from heart problems, said yesterday: “It has been a key priority for the board to find a new chief executive, and we believe that Richard Pym is ideal for the role.”

Mike Trippitt, of Oriel Securities, said Pym was generally well regarded and “seen as having played a good hand with the cards he’d been dealt at Alliance & Leicester”. He continued: “We see his appointment as good for restructuring B&B and good for negotiating at the right time an orderly exit for B&B.”

Mr Pym, who said in 2004 that buy-to-let mortgage specialists could be heading for disaster, as well as the danger of self-certification mortgages, had agreed to take over as chief executive of the troubled Northern Rock earlier this years, if private equity group JC Flowers had gone ahead and bought the bank.

News reported by The Independent

Santander of Spain swooped on Alliance & Leicester yesterday in a deal valuing the beleaguered bank at £1.26bn, less than half the UK lender’s value at the end of last year.

A&L defended the agreed all-share deal, saying that market conditions were worsening and that the board believed the certainty of Banco Santander’s offer was better than letting the bank remain independent. Santander did not approach A&L until after the markets had closed on Friday, when it made the offer that was announced yesterday.

The banks held talks in December, when Santander is thought to have been prepared to pay close to 700p a share. Spain’s biggest bank was rebuffed then but with A&L’s share price battered by market turmoil, Santander took its chance and sewed up the deal over the weekend.

Antonio Horta Osorio, the chief executive of Santander’s UK business, Abbey, said that Santander went over A&L’s books last year and was “fully satisfied” after updating the numbers at the weekend. A&L’s shares were trading at an all-time low last week after a stream of bad news about the housing market.

David Bennett, the A&L chief executive, said uncertainty over the bank’s cost of funding and other external issues had increased in recent weeks and that the Santander offer gave shareholders a guaranteed return in turbulent markets. But there were warnings last night of “large numbers” of job losses.

Santander is offering one new share for every three A&L shares. A&L will also pay shareholders an 18p interim dividend, slightly down from the 18.8p payout for the first half of last year.

Santander will combine A&L with Abbey, which it bought in 2004. The Spanish bank claimed it could cut £30m-£50m in costs from A&L on its own and make more than £180m of pre-tax savings from the combined businesses by the end of 2011.

David Cumming, the head of UK equities at Standard Life Investments, said: “This is a gorgeous deal for Banco Santander. They are acquiring Alliance & Leicester on giveaway terms. Given the potential integration benefits, other banks must surely be reviewing their options. I would be amazed if no one else counters with a higher offer in the next few months.”

A&L shares closed up 53 per cent at 335p, above the offer price, as some investors bet there could be a counter offer. More than 19 per cent of A&L’s stock is out on loan, meaning that short-sellers will have taken severe losses on the unexpected share surge.

A&L has been viewed as a potential takeover target since the former building society demutualised in 1997, and its share price contained a takeover premium until the credit crunch. It turned down Credit Agricole of France in 2006, when A&L’s shares were at 1,100p. But the bank has been battered by write-downs at its treasury operation and increased funding costs that have forced it to virtually opt out of new mortgage lending.

A&L has been rudderless for much of the financial crisis. Mr Bennett was off ill for three months in the first half of the year and Sir Derek Higgs, the chairman, died suddenly in April. The 156-year-old bank announced on Wednesday that Alan Gillespie, the chairman of Ulster Bank, would replace Sir Derek in September. He will not now take up the post and Roy Brown will continue as acting chairman.

Santander will issue 140 million new shares to pay for the deal, which is structured as a scheme of arrangement and will require approval from 75 per cent of A&L shareholders, which include about 504,000 individual investors. The Spanish bank has not confirmed if it will provide small investors with a free share dealing facility as it did when it took over Abbey National. It did, however, take a secondary listing in London in 2005, allowing UK investors to trade shares locally.

Santander said it would inject about £1bn of capital into A&L to cover further treasury write-downs and rising bad debts as the economy worsens. It will also reduce the assets of the combined bank by between £20bn and £30bn over two years.

The acquisition of A&L by one of the world’s 10 biggest banks will rid the UK’s regulators of one of their major concerns but sources said the first move came from Santander. Andy Kerr, of the Communications Workers Union, warned the deal could mean “a potential large number of job losses among the 8,000 employees of A&L”.

A&L has agreed to pay Santander a break fee of £12.6m if a competing bid is successful or the board fails to recommend the deal to shareholders. Santander was advised by Merrill Lynch; A&L’s advisers were JPMorgan Cazenove, Morgan Stanley and NM Rothschild.

News reported by The Independent