National Australia Bank may bid for HBOS's Australian unit, said two people with knowledge of the matter.
National Australia, which hasn't approached HBOS, met with advisory firms in London this month to discuss the prospects for a successful bid, said the people, who declined to be identified because the deliberations are confidential.
The Perth-based unit might fetch £3.7 billion ($7.3 billion), analysts estimate. HBOS, Britain's biggest mortgage lender, is seeking £4 billion from investors in a rights offering to replenish capital depleted by writedowns on subprime-infected assets and rising loan delinquencies.
Potential bidders would be tapping into growth in Western Australia, where a mining boom has spurred the economy and lifted home prices over the past three years.
HBOS Australia "is probably quite attractive for an east coast Australian bank looking to diversify," said Alan Beaney, who helps manage $2 billion, including HBOS shares, as head of investments at Principal Investment Management in Sevenoaks, England.
HBOS "would have to consider offers," said Mr Beaney. National Australia's shares dropped 4.9 percent to A$26.70 at the close in Sydney. The 51-company S&P/ASX Finance Index fell 2.2 per cent.
Australia's four-biggest banks, barred from acquiring or merging with each other under the government's so-called Four Pillars policy, are looking to buy smaller rivals to grow.
Bloomberg