Co-Op says Lloyds bid is non-binding

“Our current bid is non-binding and we would only proceed if we could reach an agreement that was in the interests of our members and other stakeholders,” said the company.

Lloyds, which is 40 per cent owned by the Government after a state bailout in 2008, said last year it had started exclusive talks to sell the branches to the Co-Op, a mutually-owned conglomerate whose businesses range from a retail supermarket division to financial services.

However, both companies admitted last week that the transaction was proving to be a complicated one, and Lloyds has always kept open a fall-back option of spinning off the assets and then listing them on the stock market.

New British banking venture NBNK, which lost out to Co-Op last year in the bid to become Lloyds’ preferred partner in the branch deal, has also retained its interest in the assets, in case the Co-Op deal unravels.

The Financial Services Authority is expected to want reassurances that the Co-Op has strong enough capital, an experienced board and adequate systems and business plan before it gives a go-ahead for the deal.

In December, credit ratings agency Standard & Poor’s also cut its outlook on Co-Op due to the risks associated with the Lloyds deal.

Other analysts have said Co-Op may need to raise money through a debt issue to fund the acquisition, estimated to be worth around £1bn.