Nov. 10 (Bloomberg) -- HBOS Plc, the U.K.'s largest mortgage lender, should change management and consider scrapping the takeover it agreed with Lloyds TSB Group Plc, Scotland's First Minister Alex Salmond said.

Salmond spoke on BBC Radio 4's Today program in support of a proposal by Peter Burt and George Mathewson, the former chief executive officers of Bank of Scotland and Royal Bank of Scotland Group Plc, either to abandon the acquisition or demand a higher price. They want HBOS's board to name them as chairman and chief executive officer.

``The difficulty that many people would have of the current leadership of HBOS is that obviously they're committed to the merger with Lloyds TSB,'' Salmond said. ``What they're saying is that they should move onto the board, they should take over the leadership of HBOS, they should examine the options for the bank including it continuing as an independent organization.''

London-based Lloyds TSB agreed to buy Edinburgh-based HBOS on Sept. 18 at one of the most volatile moments in the global financial crisis, securing a government waiver on competition scrutiny. HBOS today released a letter rebuffing an approach by Burt and Mathewson, who argued that the situation has now changed and the takeover is unfair to the bank's shareholders.

Standard Life Plc, which owns 3.4 percent of HBOS Plc shares, is considering the proposal by Burt and Mathewson, the London-based Times reported today.

Rescue Plan

The banks plan to raise money by selling preferred shares and ordinary stock in a sale underwritten by the government that may leave the state owning as much as 43 percent of the combined company. Both banks have accepted public funds to help weather the financial crisis as part of the government's 37 billion- pound ($58 billion) rescue plan.

Salmond, who leads the pro-independence Scottish National Party, said that the combination of Lloyds TSB and HBOS, which would create a bank with a 28 percent share of Britain's mortgage market, will erode competition for loans.

``If the public money is going in to support the financial sector then it's reasonable to find out whether we can do that and avoid consequences like thousands of job losses, loss of decision making and what we already know from the Office of Fair Trading, a substantial diminution of competition throughout the economy,'' Salmond said.

HBOS's merger with Lloyds remains in the company's best interest, HBOS said today in a statement in response to a Nov. 8 letter from Burt and Matthewson. The HBOS board said it considered remaining independent and sees no need to revisit the decision to reject the idea.

``We don't believe'' the proposal ``provides value to our shareholders, there are no tangible financial benefits on the table, there is no certainty and it doesn't address, we believe, financial stability,'' HBOS spokesperson Shane O'Riordain said on Radio 4 after the Salmond interview. ``They're the things that matter to all our stakeholders, our shareholders, our customers and indeed our colleagues as well.''

To contact the reporter on this story: Brian Swint in London at bswint@bloomberg.net.

Last Updated: November 10, 2008 06:56 EST