Spain's Santander Central Hispano (SCH) yesterday unveiled an £8.05 billion (€12.2 billion) bid for Abbey National, triggering speculation that the offer would lead to a bidding battle for the UK's sixth-largest bank by assets.

The banks and their advisers worked through the night to finalise details of what would be Europe's largest cross-border banking deal, diversifying SCH from its core markets in Spain and Latin America.

The proposed deal would also elevate SCH into the world's eighth-largest bank by assets as it predicted cost and revenue synergies related to the deal would contribute an additional €560 million to pre-tax earnings within three years of completion.

However, analysts and investors yesterday said that a UK suitor for Abbey would offer more synergies, prompting speculation that Lloyds TSB or Barclays could return with a higher offer if regulators could be assuaged about the impact of an in-market deal.

Abbey has attracted four takeover bids since a disastrous diversification into wholesale banking. The mortgage specialist's share price has more than halved since then.

Abbey shareholders will receive one new SCH share for each Abbey share they hold. Abbey also pledged to declare a special dividend of 31p per share, which includes 6p for a dividend differential.

Based on SCH's closing share price on July 22nd, the merger values Abbey at about £8.05 billion, or 545p per share. Its shares closed down 27p at 557p.

The proposed deal will be financed by a capital increase. SCH has authorisation from its board to purchase up to 190 million shares, or about 4 per cent of its issued share capital.

Mr Luqman Arnold, chief executive of Abbey, who will stay in his position until early next year, said: "SCH's outstanding retail financial services skills - both marketing and operational - will provide key resources and know-how to accelerate implementation of Abbey's personal financial services strategy whilst reducing execution risk."

SCH yesterday said its net attributable profit for the first-half was €1.55 billion. Including a €359 million one-off gain from the sale of stakes in Vodafone and Shinsei Bank, the rise was 48 per cent.

Meanwhile, a rival bid for Abbey National from a UK bank could be possible, even though an attempt by Lloyds TSB was blocked in 2001, according to some competition lawyers.

The received wisdom in the sector has been that UK banks were ruled out of any approach for Abbey after the Competition Commission scuppered Lloyds' £18 billion bid.

At the time, the competition authorities told the British government that further consolidation would "reduce competition in the markets for personal current accounts and banking services for small and medium-sized enterprises".

But some lawyers say the situation may have changed in the past three years - not least because the 2002 merger of Halifax and Bank of Scotland created a new competitor to the Big Four clearing banks.