Shares in the UK's sixth largest bank, Abbey National, have soared on the news that it has received a takeover approach from the Bank of Ireland.

A merger between the two companies would create Europe's 12th biggest bank, with a market value of about �15bn ($21bn).

In a statement to the London stock market, Bank of Ireland said talks were at an early stage.

"No formal discussions have yet taken place. Accordingly, there can be no certainty that a transaction will result," it said.

Dublin HQ

In the City, Abbey shares jumped 8% to 545 pence by early Monday afternoon, while in Dublin, Bank of Ireland stock was off 7.5% at 9.40 euros.

Bank of Ireland is proposing to create one merged company, with its head office in Dublin and its main stock market listing in London.

The Bank's confirmation of its bid approach came after press reports over the weekend.

Windfall investors bruised

The bid comes as Abbey National is struggling to restore investor confidence after suffering a series of embarrassing setbacks earlier this year.

In June, the bank warned the City that profits would fall short of expectations, blaming a series of risky corporate loans.

The news dragged Abbey's share price sharply lower, and led to the resignation of its chief executive Ian Harley the following month.

Abbey stock was under pressure again last week, falling to seven-year lows amid speculation that the company is nursing losses in its wholesale banking division.

The fall in the company's share price has wiped millions off the value of institutional investors' holdings.

It has also affected millions of ordinary account holders who were handed a free stake in the former building society when it converted to a publicly listed company in 1989.

Succession of suitors

Abbey has been seen as a likely candidate for a merger or takeover for the last two years.

A planned tie-up with Bank of Scotland fell through last year, and a hostile takeover attempt by Lloyds TSB was blocked on competition grounds.

This summer, Abbey was reported to be holding merger talks with National Australia Bank, which already owns the Clydesdale, Yorkshire, and Northern banks in the UK.

Abbey has yet to appoint a a new chief executive.

According to one report, the current finance director Stephen Hester is expected to be given the job within the next two weeks.