National Australia Bank, named by the Daily Telegraph as a potentially interested party, played down the report, while a UK industry source said HBOS had not received an approach.

"We're not sure this is a clever time to make acquisitions," NAB Chief Executive John Stewart told reporters today shortly after NAB announced a further A$830 million in losses from its exposure to US mortgages.

Without giving a source for its information, the Telegraph report said JP Morgan had also approached private equity firms and may talk to Spanish bank Santander for a deal that would resemble the break up of ABN AMRO by a group of three banks last year.

NAB could be a buyer of HBOS's Australian arm, Bankwest, and may also be interested in the corporate banking unit, the report said.

HBOS declined to comment, while JP Morgan was not immediately available.

HBOS, Britain's biggest home lender, has been hit hard by the global credit crunch and its share price has tumbled, increasing speculation it could be taken over.

It has been looking to shore up its balance sheet to help it weather conditions in a fast-deteriorating UK property market.

Earlier this month an emergency fund-raising flopped as investors took just 8.3 percent of the shares offered. The market price of the shares fell below the offer price of 275 pence amid worries about UK banks' prospects as the economy falters.

The Telegraph report said no consortium has been formed and talks could still fall through, while a break up bid may meet opposition from UK regulators.

A combination between HBOS's mortgage business and Santander's UK operations including Alliance & Leicester, the British lender which last week accepted a £1.3bn offer from the Spanish bank, would control about 32 per cent of the British home loans market, exceeding the competition authorities' 25 per cent limit.