Bank of Scotland and Abbey National have been rebuked by the Takeover Panel, the British bids watchdog, for leaking information about their merger talks before telling the City.

Abbey National, the secondlargest mortgage lender, was the focus of a panel inquiry after a report in the Financial Times yesterday that it had ruled out a hostile bid for Bank of Scotland.

The report followed an interview with Lord Tugendhat, Abbey's chairman, who said: "It is absolutely central to our proposition that this would have to be a friendly deal."

But yesterday Abbey appeared to be retreating from this position after the intervention of the panel, although a hostile bid is still thought unlikely.

The panel could force Abbey to put out a statement clarifying its intentions, which would be embarrassing.

"The press is not the ideal forum for publicising information or the positions of the parties," said Mr Matthew Puhar, case officer at the panel. "We are very concerned that there was a leak before the formal announcement [of the talks]. There must have been some kind of briefing of the press which is absolutely not acceptable."

The panel inquiry came as talks restarted, with Lord Tugendhat telephoning Sir John Shaw, governor of Bank of Scotland.

"Sir John will be writing tomorrow with a response," the bank said. "Any exchanges between ourselves and Abbey will be conducted directly and not through the media."

Both sides said they were unhappy with the attention the talks had attracted since being revealed on Friday. One person close to the talks said it was a "bizarre and totally unorthodox fashion" of setting up a deal.