An attempted boardroom takeover of HBOS by two former bank chief executives has been unanimously rejected by HBOS's board, its chairman has said.
Sir Peter Burt, formerly of the Bank of Scotland, and Sir George Mathewson, ex-head of the Royal Bank of Scotland, say they should be appointed to lead HBOS.
They want the bank to stay independent and intend to canvas shareholders.
But HBOS said their plan offered no value to its shareholders and said a deal with Lloyds TSB was on track.
In a letter to the two men, HBOS chairman Lord Stevenson of Coddenham said his board saw "no basis for future discussion".
He was responding to an earlier letter in which Sir Peter and Sir George had called for his immediate resignation, as well as that of HBOS chief executive, Andy Hornby.
"It's a fantastic deal for Lloyds but it's not a good deal for anybody else"
They said they would take over temporarily as chairman and chief executive, come up with a plan to keep the bank independent and end the proposed £12bn Lloyds TSB takeover.
The letter-writers said by keeping HBOS independent they could protect jobs and bring benefits to customers and shareholders.
A rebuff from the HBOS's boardroom followed, yet Sir Peter and Sir George say they still intend to call an extraordinary general meeting for HBOS shareholders to find out their views.
They say HBOS no longer needs to be rescued by Lloyds TSB, because the government and Bank of England have offered vital funds.
Sir Peter, who is credited with creating HBOS, said Lloyds TSB was no safe haven for HBOS.
"It's impossible to ignore the very formidable obstacles faced by Sir Peter Burt and Sir George Mathewson"
"The black horse has got two broken legs," he said, referring to the company's symbol. "It's a fantastic deal for Lloyds but it's not a good deal for anybody else."
He added: "Why would the government want to push through a merger which the Office of Fair Trading has said is against the public interest; jobs will be lost north and south of the border; it is anti-competitive; it is not good for staff; it is not good for customers; and it is not good for shareholders?"
But HBOS insisted a "well-developed deal" with Lloyds TSB was on track and provided certainty to its shareholders and real financial benefits.
Deal 'on course'
Shane O'Riordain, head of communications at HBOS, said the plan from Sir Peter and Sir George did not offer shareholders anything - no cash, no value nor any certainty.
"All they are simply saying is they would come in and run the company instead," he added.
"Together with Lloyds TSB we will be a stronger group, a group in a better position to access funding and, after all, funding is the lifeblood of any bank."
The Treasury said the merger with Lloyds TSB was still on course, but if it did not go ahead, the government would have to look again at any taxpayer support.
The government has already spent £17bn of taxpayers' money bailing out HBOS.
BBC business editor Robert Peston said he sensed the Treasury was not keen on putting more taxpayers' money into HBOS.
He said the chancellor, Alistair Darling, had already made it clear he was not enthusiastic about HBOS operating as a stand-alone business and Gordon Brown was not likely to abandon his backing for the Lloyds takeover.
First Minister Alex Salmond said of Sir Peter and Sir George: "They are the two outstanding figures in the Scottish financial sector over the last generation, and therefore their views command great respect."
The Scottish National Party has been highly critical of the takeover. There are 17,000 jobs at stake in Scotland and it has become a highly-charged political issue.
Mr Salmond emphasised all propositions on the future of HBOS should be considered in terms of the best interests of Scottish jobs, business, personal customers and the wider Scottish economy.
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