Gordon Brown is confident that the proposed takeover of HBOS by Lloyds TSB will go ahead amid concerns that Lloyds could renegotiate the deal after HBOS’s shares plummeted by almost 14 percent on Tuesday.

Robert Peston, the BBC’s business editor, said that people close to the deal had told him there was no way that Lloyds would change the terms of the deal.

At present, HBOS investors are to get 0.83 Lloyds shares for every HBOS share they own. But HBOS shares have been up and down over the past fortnight during which time they have lost over half their value.

At one point on Tuesday, HBOS shares fell by 26 percent, closing at 122.4p on Tuesday.

The prime minister spoke to Sky News, and said he was confident that the Lloyds-HBOS deal would go ahead. He was keen to stress that this was not a government matter but one “for shareholders”.

Mr Brown said, in response to whether the government would bail out HBOS were the deal to collapse, that the government had already “dealt” with this by helping the merger take place.

“We changed the competition law to make it possible,” he added.

When the deal was fleshed out it was worth £12bn. However, analysts are cautious about the deal actually taking place.

“The market is implying that [the deal] does not happen,” said Alex Potter of Collins Stewart.

But an HBOS spokesperson claimed it was “full steam ahead” and that it was “the right deal for HBOS shareholders”.

Lloyds said the deal was still on track for completion by the end of 2008.

“This is a fantastic opportunity to create one of the UK’s leading financial services groups,” a spokesman said. Lloyd’s shares closed 4.3% up on Tuesday.

HBOS entered into the agreement with Lloyds when its share price fell sharply, following the collapse of US investment bank Lehman Brothers. A deal between HBOS and Lloyds would create a business with almost a third f the UK’s mortgage market with some 3,000 branches.