LONDON - HBOS PLC shareholders on Friday voted overwhelmingly in favour of a takeover by British rival Lloyds TSB Group PLC, according to preliminary results, even as HBOS shares slumped on news of more losses on bad loans.

Investors in the Edinburgh, Scotland-based bank who voted by proxy backed the government-brokered deal with 'overwhelming support,' the bank said.

Votes cast before the meeting showed that 98 per cent of shareholders - based on individual shares - supported the plan.

HBOS said it expects the votes taken at Friday's meeting in Birmingham, in central England, to be similarly in favor of the deal.

Investors in London-based Lloyds approved the deal last month, with a 95.98 per cent majority, making Friday's vote the last significant hurdle to the deal. Lloyds said it now expects the takeover to be completed by Jan 19.

The resulting retail bank will account for over a quarter of the British mortgage market and about half the savings market.

The government waived competition rules to allow the deal, arguing that it was necessary to maintain financial stability.

The HBOS vote results had been widely expected, so the news did not have a large effect on share price.

The bank's shares did, however, dive sharply after the bank revealed earlier on Friday that its impairment charges on bad consumer and corporate loans had swelled to 5 billion pounds (S$11.1 billion) for the year.

In a trading update published in advance of the vote, HBOS said that credit market conditions had become increasingly difficult over the last two months, forcing it to increase its estimated charges on bad debts for the year to 5 billion pounds, up from an estimate of 2.9 billion pounds on Sept 30.

As of mid-afternoon, HBOS shares were down 22 per cent to 69 pence.

Lloyds shares tumbled 18 per cent to 129 pence.

The preliminary vote results also indicated that HBOS investors backed plans to raise 11.5 billion pounds through the issue of new shares and special preference shares to strengthen the bank's balance sheet.

The investment is likely to come almost exclusively from the government's 37 billion pound plan to recapitalise three of Britain's largest banks.

The news of more bad loan charges at HBOS dragged down shares across the whole of Britain's banking sector. Royal Bank of Scotland Group PLC fell 17 per cent to 55 pence, Barclays PLC dropped 12 per cent to 142 pence and HSBC Holdings PLC declined 7 per cent to 51 pence.

Employees of both HBOS and Lloyds, which total some 145,000, are worried that hefty job cuts will result from the takeover. -- AP