Shares in Bank of Scotland and Halifax parent HBOS rebounded by 21% yesterday but nevertheless closed at a yawning 29% discount to the value of Lloyds TSB�s takeover offer.

Shares in Bank of Scotland and Halifax parent HBOS rebounded by 21% yesterday but nevertheless closed at a yawning 29% discount to the value of Lloyds TSB's takeover offer - signalling continuing doubt in the City that the deal will complete on current terms.

The emergence yesterday of Standard Life Investments (SLI) as a strong supporter of the agreed deal on the table, in which Lloyds TSB is offering 0.833 of its shares for every one in HBOS, yesterday helped narrow the discount of the Edinburgh-headquartered bank's shares to the bid value from about 35% on Tuesday night.

However, 29% is still a much larger discount than would be expected in such a situation, especially with Prime Minister Gordon Brown expressing his confidence on Tuesday that the deal would go ahead and SLI's support.

SLI's percentage stake in HBOS is, at about 3.14%, more than double its 1.43% holding in Lloyds TSB. SLI has been a consistent buyer of HBOS shares in recent sessions.

A person familiar with SLI's views told The Herald yesterday that this institutional investor is supportive of the Lloyds TSB bid for HBOS on the current terms, in spite of City speculation that the London-based bank might reduce its offer.

Shares in HBOS rose 25.7p, or 21%, to 148.1p yesterday, with Lloyds TSB up 23.5p, or more than 10%, at 250p.

Lloyds TSB's bid last night valued each HBOS share at 208.25p. However, shares in HBOS are trading 60.15p below this level.

HBOS's stock market worth last night was £7.8bn, significantly adrift of the £11bn level of Lloyds TSB's bid.

Lloyds TSB requires, from its investors, the approval of those holding at least 50% of the number of shares voted for the deal to proceed.

HBOS needs, from its shareholders, the approval of those holding at least 75% of the shares voted.

HBOS also requires the support of at least 50% by number of shareholders voting.

Royal Bank of Scotland emphasised yesterday that it would be applying for the Republic of Ireland operations of its Ulster Bank subsidiary and First Active business to be included in the Irish government's scheme of guaranteeing all bank deposits. Royal issued a statement on the issue amid a raft of speculation about the implications of these operations being excluded.

A spokesman for Royal said last night: "Ulster Bank Ireland Ltd and First Active Plc intend to apply to be included in the scheme. Any application is expected to be successful."

Shares in Royal finished just 1p higher at 180p yesterday, as other UK-quoted banks made much greater gains.