Abbey shares have soared this afternoon after the UK bank admitted it was in takeover talks and Spain's biggest bank Banco Santander Central Hispano subsequently confirmed it is the other party.
Abbey shares are currently up 79p to 572p, although they gained almost £1 on first news of the talks.
It is the second time this year that Banco Santander has made a move for the troubled UK firm.
Both banks refuse to say whether the talks will lead to a firm bid, but the market's reaction clearly indicates the premium it believes will have to be paid for the deal to go through.
Abbey is mid-way through a multi-year recovery plan after its disastrous foray into wholesale banking services cost former chief executive Ian Harley his job two years ago.
Abbey shareholders may want to see through the three-year recovery under current chief executive Luqman Arnold.
However, the promise of a big cash return may be enough to persuade institutions they are better off with Banco Santander.
Abbey's share price went above £13 in early 2001, and there seems little hope the bank can retain such levels any time soon.
A bid to merge with Lloyds TSB was rejected on competition grounds, and no other UK-based bank is likely to try such a bid again.
While the talks with Banco Santander are not yet at the formal bid stage, the City's Takeover Panel has already added the two companies to its disclosure table, which means at some point they will be forced to declare a bid on or off.IFAonline
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