Peter Burt, a former chief executive of Bank of Scotland, which is now part of HBOS, and George Mathewson, a former chief executive of the Royal Bank of Scotland, sent a letter at the weekend to HBOS Chairman Dennis Stevenson calling for his resignation and that of chief executive Andy Hornby, and a stop to the Lloyds merger. In September, the UK government pushed the Lloyds-HBOS deal because it feared it might otherwise have to nationalize HBOS.

"We firmly believe that a stand-alone recapitalized HBOS, which has had a strategic plan agreed and new management teams put into place, will represent far greater upside and stability than the Lloyds takeover," the letter said. It said that, with a return to core businesses and the U.K. government's bailout package, HBOS is better off remaining an independent bank.

The letter said that Mr. Burt should succeed Mr. Stevenson as chairman and Mr. Mathewson should be the new CEO.

Questions have swirled around the HBOS-Lloyds deal since the U.K. government unveiled its £400 billion ($626.86 billion) bank-rescue package in October. At the time, the terms of the deal were changed.

The bailout package also meant that the U.K. would pay £3 billion for preferred shares in HBOS, while Lloyds took only £1 billion from the government. As a condition for its taking stakes in banks, the U.K. said it would ban dividends until the government shares were repaid, provoking Lloyds shareholder discontent about the deal.

In addition, there were some concerns that the deal could be scuttled after a Scottish entrepreneur said last week he was in talks with another bank to launch a bid for HBOS. HBOS said it planned to go ahead with the Lloyds deal.

However, HBOS rejected the men’s request. In a statement issued to the London Stock Exchange today, HBOS said: “The Board has unanimously concluded that your letter does not form the basis for any further discussion between us."

The statement said: “We note that it sets out some of your personal reservations about the transaction and makes it plain that you wish the Board of HBOS to abandon the takeover by Lloyds TSB, a transaction with very considerable benefits to HBOS shareholders, and appoint the two of you as chairman and chief executive.”

It continued: “Thereafter you would intend to develop an “alternative plan”. You do not describe any specific aspect whatsoever of this plan. Nor do you set out a value proposition for shareholders, or address how your idea would provide certainty or stability for HBOS and its shareholders and customers. You provide no assurance as regards the terms on which HMG would be prepared to recapitalise HBOS standalone under your leadership.”