Bank of Boston Corp. and Shawnut National Corp. once again are at a critical point in their long-running discussions about a merger that would create New England's largest bank company, soruces said.

Shawmut's board met Wednesday in Hartford to discuss whether to go ahead with the proposal, a bank official confirmed. Bank of Boston's board was scheduled to meet today, but a special meeting to approve a deal could be convened at any time, source said.

"If they postpone a decision past Thursday," said Nancy Bush, an analyst with Brown Brothers Harriman & Co. in New York, "then it won't happen until after the January earnings announcement."

Delay Could Be Costly

Ms. Bush and other analysts said that another postponement could drive up the cost of the merger to Bank of Boston. Its stock, they said, is prone to downward pressure in a market increasingly bearish on big bank deals.

In late-afternoon trading on Wednesday, shares of Bank of Boston were up 12.5 cents to $9.875 a share, after falling 10% on Monday and 4% on Tuesday. Shawmut stock was trading at $8.25 a share, unchanged from Tuesday's close.

The two companies were close to announcing a deal in September but the talks before down because Shawmut was concerned about the quality of Bank of Boston's loan portfolio and because regulators felt that investors should pump more capital into the merged company.

Speculation about new terms for a merger has been rampant this week. The Boston Globe on Tuesday reported that Bank of Boston has received $1 billion of capital commitments from two foreign banks and several domestic investors to finance the deal. A Shawmut source labeled the report "fiction."

Both banks declined to comment.

Capital Ante Raised

However, sources close to the deal said the two banks have been asked by regulators to raise at least $750 million. In previous negotiations, they had agreed to raise $625 million in a stock offering, the sources said.

A merger between the two companies would create New England's largest bank, with $55 billion in assets, vaulting ahead of Fleet/Norstar Financial Group, which has $46 billion in assets. Fleet, based in Providence, R.I., purchased most of the assets of the failed Bank of New England Corp. in July.

The Boston Globe also reported that Bank of Boston has decided to increase the exchange offer it will make for Shawmut's 73.7 million shares outstanding.

The paper said Shawmut shareholders will receive 0.92 share of Bank of Boston for each Shawmut share - up from a previously reported offer of 0.87 to 1.

The new ratio would translate into a $669 million purchase price at Wednesday's closing stock price.

The Shawmut source also denied that element of the report.

Second Thoughts

Well-placed sources earlier said that Shawmut chairman Joel B. Alvord and his board had balked at Bank of Boston's original terms in September after their investment bank refused to validate that the deal as good for Shawmut shareholders.

The firm, Morgan Stanley & Co., reportedly expressed concern that Bank of Boston's $22 billion loan portfolio could weaken dramatically if New England's economy continues to falter.

Bank of Boston has a loan-loss reserve of $924 million against 83% of its nonperforming loans, coverage that the adviser fears is inadequate.

Shawmut has since received a report from Price Waterhouse that said Bank of Boston is not concealing the extent of its problems, according to sources at the banks.

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