The business - Patrick Hosking fears a giant bank would rip us off

A merger that gives one bank 34 per cent of the mortgage market would surely be vetoed. We're not ta

In the next few days, James Crosby and his board colleagues have to make the most important decision of their careers. The chief executive of Halifax Bank of Scotland has to decide whether to press the button on a £10bn bid for Abbey National or to walk away empty-handed. Abbey has already provisionally agreed to accept an £8.75bn offer from Spain's Santander banking group. But the offer price is not considered generous, even taking into account "shabby" Abbey's dented reputation these days. HBOS has made it plain that it is interested.

Many would love to see a full-scale bidding scrap. Abbey shareholders would lap up the boost to the share price an HBOS offer would deliver. An army of advisers on all sides can scent juicier fees in the event of protracted hostilities. And the financial press would revel in another colourful bid battle now Philip Green has retreated from Marks & Spencer.

Would an HBOS bid be blocked? To hear the views of competition lawyers and Whitehall lobbyists - not the most disinterested of experts - you'd think the chances of clearance are something like 50/50 or even

better. Although everyone expects the Office of Fair Trading to refer an HBOS bid to the Competition Commission, many then expect the commission to clear it, albeit possibly with conditions.

Yet the merger would combine the biggest and second-biggest suppliers of mortgages in the UK, leaving 34 per cent of the market in the hands of a single bank. Anything above 25 per cent is generally regarded with suspicion. And we are talking about mortgages, for goodness sake. In terms of consumer outlay, no industry is more important. This is not

some footling sub-sector such as ice creamor replica football kits - two of the more esoteric industries that the competition authorities have pored over in the past.

When so much is at stake, you'd expect officials to err on the side of caution; a misjudgement here could be vastly more damaging to consumers' pockets than in most of the rulings they are called on to make. This industry has in recent times fleeced consumers on a monumental scale. The impact of the mortgage endowment mis-selling scandal is still reverberating, and will do so for many years. Admittedly, the fault lay primarily with financial advisers and insurers rather than bank lenders, but try making that distinction to a homeowner facing a shortfall of tens of thousands of pounds.

As the tipping point finally arrives in the housing market, another factor may occur to competition officials. If stories of repossessions and negative equity start to appear, who wants to be fingered as having sanctioned a 34 per cent stranglehold for a single company?

Then there is the question of jobs. In theory, in the brave new world of merger policing, jobs are irrelevant. It should not matter a jot whether HBOS chooses to sack all 26,000 Abbey staff. Except for the sensitive industries of media and weapons, politicians are powerless to intervene. In practice, public servants are bound to be coloured by their political masters' concerns. Banks are hardly flavour of the month in Westminster and officials are well aware of it.

Santander plans to shed about 3,000 staff if its bid succeeds. HBOS is not saying anything, but a cull of twice or three times as many looks probable. Not just in the back offices and call-centres, but also through branch closures: 544 Abbey branches are located within a quarter of a mile of a Halifax or Bank of Scotland branch, according to one chilling (for branch staff) statistic.

HBOS and its lawyers Allen & Overy would be able to marshal some arguments in their favour. The British mortgage market is one of the most competitive in the world. It is reasonably transparent. It is fairly straightforward for borrowers to switch lenders in search of a better deal.

And a merger would bulk up HBOS in other areas, making it better able to take on the traditional Big Four. Britain is overbanked and crying out for consolidation, which would in theory improve efficiency and lead to better-priced products. Moreover, HBOS's record on employment has been relatively benign - it has created a net 6,000 new jobs since the merger of Halifax and Bank of Scotland.

Even so, the chances of a green light look slim to me. Not that that makes Crosby's decision easier. The potential prize is immense. Royal Bank of Scotland's takeover of NatWest not only fabulously enriched RBS shareholders; it also catapulted the RBS chief executive Fred Goodwin to banking superstardom.

The cost of failure would be nine months of management distraction, a few dozen millions of pounds in advisory fees down the drain, and a modest black mark for poor judgement. It could also make HBOS itself vulnerable to a bid. We will learn very shortly whether those are risks Crosby is prepared to shoulder.

Patrick Hosking is investment editor of the Times