BARCLAYS Bank stunned the City yesterday with the announcement that it is in talks with Woolwich to launch a £5.5bn takeover bid for the former building society.

Barclays said the combination would create a major presence in the mortgage market and would serve one of the largest customer bases in the UK financial services industry.

A deal would also boost Barclays' position in Internet banking, giving it Woolwich's Open Plan integrated Internet, telephone and branch banking service.

Barclays is expected to keep the Woolwich brand following a possible deal.

However, worries were sparked about potential job cuts if a takeover went ahead, with Barclays saying it would be expecting to generate "cost savings".

Neither of the banks would comment on the impact on staff of a potential deal.

Woolwich has more than 6,000 staff in the UK, operating from more than 400 branches, while Barclays employs more than 50,000 UK staff in around 1,700 branches.

However, Woolwich shareholders benefited from the announcement, with shares in the former building society jumping 27 per cent on the stock market.

The leap up 72p to 341p saw shares move closer to Barclays' potential offer price of 362p-a-share.

Around 2.3 million Woolwich members had shares in the group at flotation with each holding an average of 657 shares. Of these, around 1.1 million members still hold shares.

Analysts were mixed as to whether Woolwich may attract another suitor. Mark Finn, banking analyst at Williams de Broe, said: "I don't think this is necessarily a done deal yet. There could be interest in the Woolwich from other banks and there could be competition considerations.

The City was also divided over whether the move would spark bids for other banks.

Mr Finn added: "What it will do is give a boost to the mortgage banking sector with the possibility of further bids.