HBOS is the biggest mortgage lender in the UK
Shares in HBOS, the UK's biggest mortgage lender, sank almost 14% on market speculation that Lloyds TSB could renegotiate its takeover deal.
HBOS shares closed at 122.4p having fallen by as much as 26% earlier. Meanwhile Lloyds ended up 4.3%.
BBC business editor Robert Peston said people close to the deal had told him there was no chance that Lloyds TSB would change the terms of the takeover.
Lloyds said the deal was on track and should be completed by the end of 2008.
"This is a fantastic opportunity to create one of the UK's leading financial services groups," a spokesman said.
When the deal was struck weeks ago, it was worth £12bn.
Under the terms of the agreement, HBOS investors will get 0.83 Lloyds shares for every HBOS share they own.
"Given extreme market volatility, the market is pricing in an increased risk that the Lloyds acquisition either won't go ahead, or that there'll be an attempt to renegotiate in Lloyds' favour," said Ian Gordon, an analyst at Exane BNP Paribas.