Following their embarrassing £4bn rights issue debacle, HBOS is on the verge of being broken-up by a consortium headed by JP Morgan.

Britain’s biggest mortgage lender has been the centre of numerous takeover rumours following their dramatic fall in share price, and it now appears that the US banking giants JP Morgan are first in the queue, having concocted a bid for some time.

Several groups and equity firms have been mooted as potential partners in the JP Morgan consortium, however talks of an immanent bid from Spain’s second largest bank Banco Bilbao Vizcaya Argentaria (BBVA), have been quashed.

Initially Spanish private equity firm Santander were believed to be sniffing around but have now potentially been usurped by the National Australian Bank (NAB) as a possible buyer for HBOS’s Australian division, BankWest. NAB already happens to own Clydesdale and Yorkshire Banks in the UK and may also show an interest in the Bank of Scotland banking section of HBOS.

JP Morgan, who rescued Bear Stearns earlier this year, could act as the group’s advisor in a situation not too dissimilar to the pivotal role Merrill Lynch played in the ABN Amro break-up deal. However the Financial Services Authority (FSA) may nip the whole process in the bud due to the potential of one of Britain’s biggest banks being destabilised.

Despite showing a growing interest, JP Morgan is unlikely to make a move for any of HBOS’ larger constituent areas, mainly due to their recent acquisition of Bear Stearns and their lack of a UK retail banking operations.

Other areas of HBOS also remain attractive acquisitions, as its insurance and investment business, Clerical Medical and its asset management sections Insight and St James’s Place, which HBOS owns a 60% stake, prove enticing.