Abbey National has rejected a takeover approach from the Bank of Ireland, saying it prefers to push ahead with its existing restructuring plans.

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

The rejection came a day after Bank of Ireland confirmed press reports that the two firms had begun talks about a possible tie-up.

In a statement to the London Stock Exchange, Abbey National has said its board had unanimously concluded the proposal was not in the best interests of its shareholders.

Dublin HQ

Bank of Ireland had proposed the creation of one merged company, with its head office in Dublin and its main stock market listing in London.

However, analysts believe Abbey's rejection of Bank of Ireland's suit is unlikely to be the end of the story as other bidders may emerge.

Abbey's shares have fallen dramatically in the last year, making it a takeover target.

News of Bank of Ireland's approach sent Abbey's shares leaping upwards by 8% to 545 on Monday afternoon, while in Dublin, Bank of Ireland stock was fell 7.5% to 9.40 euros.

Windfall investors bruised

Abbey National has been 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 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.