BANKING giant Lloyds TSB was today reported to be in talks that could lead to Edinburgh-based Scottish Widows Investment Partnership (SWIP) merging with a European rival.

The bank is said to be discussing the future of its asset management arm, taken over by the group at the top of the market in 2000, with the Belgian-Dutch financial services group Fortis over a joint venture.

A spokeswoman for Lloyds TSB, which also has mortgage lender Cheltenham & Gloucester in its stable, today refused to comment on the speculation over SWIP, but under present plans it is thought likely that UK funds would be managed from the Capital, while Fortis would run European investments.

City experts said the fund management businesses are finding life tough alone. But combined, the two would form a "European asset management powerhouse" that would have far greater buying and selling potential, as well as substantial cost savings and greater distribution reach.

Fortis, led by its new chief executive Jean-Paul Voltron is hoping to grow the profitability of Fortis Investments, but has stopped short of plans to sell the entire investment management group. He is thought to have made earlier approaches to BNP Paribas and Schroders about taking a stake in the firm.

Lloyds TSB chief executive Eric Daniels has publicly committed to retaining Scottish Widows as part of his growth strategy for the bank, but has long been searching for a deal to strengthen Lloyds TSB's balance sheet and bolster defences against potential predators.

Speculation has recently centred on the possibility of a bid for the UK financial services group by Wells Fargo or Bank of America, two of the biggest names in United States banking. Lloyds TSB has already explored potential tie-ups with the Dutch financial services giant ABN Amro, Banco Bilbao Vizcaya Argentaria of Spain and Germany's Deutsche Bank.

There has been a number of cross-border consolidations in recent years. Among those to already tie the knot are Spain's biggest bank Banco Santander and the British mortgage lender Abbey, ABN Amro and Italy's Antonveneta and rival Italian bank Unicredito and HVB of Germany.

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