Bidder for Lloyds Banking branch sale out of the race

Hugh Osmond’s Sun Capital Partners was unlikely to enter a second round bid for the branch estate, known as Project Verde, according to a report yesterday, owing to the current turbulence in financial markets.

Sun Capital’s decision leaves NBNK, a shell company run by former Northern Rock chief executive Gary Hoffman, and Co-operative Financial Services, part of the Co-op Group, as the confirmed bidders from the first round.

Virgin Money, the bank arm of Sir Richard Branson’s Virgin Group, and National Australia Bank have also reserved the right to make an offer at a later date.

On Friday, Virgin Money confirmed the appointment of City grandee Sir David Clementi as its new chairman, a move seen as a sign that the group is gearing up for a major expansion push. Virgin Money is also a possible bidder for state-owned Northern Rock.

Sun Capital’s decision will come as a blow to Lloyds as only last month it was reported to be canvassing investors over a possible £2bn fund raising.

The vehicle of Mr Osmond, who is best known for high profile investments in Pizza Express and Punch Taverns, Sun Capital was also said to be the group farthest along in the process of working out how to separate the branches from Lloyds.

Yesterday’s report suggested that the uncertainty currently facing the banking sector was a key reason behind its decision not to proceed, while it had also estimated the cost of the new technology to run the branches would be higher than previously thought.

Lloyds is being forced to divest the branches by the European Union in return for the £20bn in state aid it received following the 2008 credit crisis. The sale includes 4.6 per cent of personal current accounts and five per cent of the mortgage market, contributing about £500m of pre-tax profit in 2008 and income of about £1.4bn.

Taxpayers ended up with a 40.6 per cent stake in Lloyds and 83 per cent of Royal Bank of Scotland after rescuing both banks during the credit crisis with taxpayer bailouts, and RBS has also been told to sell off a host of assets.

New British bank venture NBNK submitted a second-round bid for the branches last month after walking away from a possible tie-up with the UK business of National Australia Bank.

The bank was set up last year by Peter Levene, chairman of the Lloyd’s of London insurance market, for the purpose of making acquisitions in order to establish a significant UK retail bank.

NBNK is expected to exercise an option to buy fewer mortgages and other loans than were originally on offer, since tough credit market conditions have made it hard for any bidder to borrow on the market to finance the larger portfolio of loans.