Co-op to get Lloyds branches on cheap

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Lloyds Banking Group is understood to be close to selling over 600 branches to the Co-operative Group at a steep discount to the expected £1.5bn price tag.

Lloyds must sell the branches, known as Project Verde, under European rules after being bailed out by the UK Government in 2008, in a step that will create a new competitor for the traditional high street banks.

It is thought that Lloyds will receive around £1bn for the 630 branches over a period of years, dependent on performance.

The bank could be in line for additional payments if the business performs well in the future.

The Co-op’s board is due to meet early next week to finalise and approve the deal, ending seven months of complex discussions. The details will be released after the meeting.

Lloyds declined to confirm the price of the deal or that the long-drawn out sale is nearing its end.

A spokeswoman said: “We are making considerable progress.”

The sale price has been hit by the sharp deterioration in the economy and a reduction in mortgage loans in order to ensure assets and liabilities are more evenly matched.

The Verde business has around five million customers and represents six per cent of all bank branches in Britain.

When combined with the Co-op business, it will have seven per cent of the total market for current accounts in Britain.

The Lloyds purchase will triple the size of the Co-op’s banking arm and increase its share of UK branches to around 10 per cent.

Lloyds chose the Co-op as its preferred bidder in December, but sale plans have suffered lengthy delays and initial hopes to sign a deal by the end of March were dashed due to protracted talks with regulators.

It is thought that some of the regulatory uncertainty surrounding the Co-op offer has been addressed through plans for a Lloyds management team to transfer with the business in order to run the Co-op’s enlarged banking arm.

Lloyds is also said to be providing the systems and technology platforms needed to run a large banking operation.

It is possible that because the financial services arm will dwarf the rest of the Co-op business, the whole of the Co-op, led by chief executive Peter Marks, will have to be regulated as a financial institution.

At the end of June Lloyds said it had reached an understanding over the terms of a deal to sell the branches to the Co-op.

Lloyds, 40 per cent owned by the Government, said it was ending talks with new banking venture NBNK, which is now being wound up.

At the time Lloyds said negotiations with the Co-op would proceed on an exclusive basis.

ros.snowdon@ypn.co.uk