The drama of last Monday's collapse in global markets and the subsequent rumour that Lloyds TSB would be forced to renegotiate left those on the sidelines holding their heads in their hands as we continue to await the eventual outcome.

With the HBOS shares struggling to keep score with Lloyds it looked as if its suitor had scored an own goal by overpaying for a bank that only a week or two earlier it was accused of trying to pick up at a bargain price. There was talk that Lloyds would need to reduce its take-out price of 83 shares for every 100 in HBOS to 60 per 100.

After a healthy rally in both companies at the end of the week it looks as if the deal will go ahead on the original terms. With two big shareholders, Standard Life Investments and M&G, publicly supporting the merger there is a growing will to ensure that it does. The intervention of Gordon Brown and his Chancellor in allowing it to avoid a competition inquiry means political reputations are at risk if it should flounder and Brown knows that HBOS is just too big for the Government to consider nationalising it.

Yet the weaknesses in the combination remain. The capital ratio of the merged entity will fall, the loan-to-deposit ratio will be relatively high compared with its peers. There will be a £10bn capital deficit which may require another cash call. The fundamental problem at HBOS – its exposure to frozen wholesale markets – will not go away but will pass to the combined group. In other words, HBOS's problems becomes Lloyds' problems and Lloyds has yet to say in any detail how it will solve them.

All this explains why, despite an impressive rally, HBOS continues to trade at a substantial discount to the Lloyds TSB offer – 40.2p at Friday's closing prices. While this provides a cheap route into Lloyds TSB it also indicates some nagging uncertainty, not only about the underlying numbers but whether the deal really will be consummated. In such unpredictable times nothing can be taken for granted.

The big plus in all this is the growing stature of Lloyds TSB chief executive Eric Daniels, who has the City on his side and the good fortune to be in the right place at the right time. The decision to divert attention from investment banking and sub-prime loans, the route favoured by its rivals, now looks like a masterstroke. Daniels is seen as the man who can get HBOS scoring again.

The offer document from Lloyds is expected next month when we may also find out what job will be offered to HBOS chief executive Andy Hornby. More to the point, it will clear up any lingering doubts about the terms of the deal and what further horrors, if any, lie in wait.

One further issue that ought to be given more prominence is the invisibility of HBOS's non-executive directors throughout this unhappy episode. They appear to have been fiddling while Rome burned. Why were shareholders given so few warning signs of trouble ahead? And why was the executive team allowed to escape censure until the walls finally came crashing in?

The only visible casualty was retail boss Benny Higgins, who appears to have taken the rap for the board's collective decision to pursue a flawed strategy. Hornby said that he took "full personal responsibility" for what had happened to HBOS. So why didn't he fall on his sword?

Thousands of his "colleagues" will lose their jobs due to the board's failings, but there is still time for him to join them and opt for an honourable exit.

Iceland crisis will hit UK if it is not fixed

STILL with the banks, and Iceland's financial sector is starting to unravel after years of spiralling growth. An island with only 320,000 inhabitants is home to an investment industry that controls huge swathes of Britain's high street and supports some of our biggest entrepreneurs, including Sir Tom Hunter and Robert Tchenguiz.

But the downturn has been sudden and its banks have hit the rocks. Last week the government nationalised Glitnir while Lansbanki has been offloading assets and Kaupthing, the biggest, is the focus of much speculation. It has backed many big ticket deals and is a major property investor.

The Icelandic government is said to be devising a rescue plan for the economy, but the crisis could reverberate around Britain if it is allowed to escalate.