Progress on sell-off of Lloyds branches

NBNK Investments, Sun Capital Partners and The Co-Operative Group’s banking arm are competing for the branches which analysts say could fetch about £2.5bn.

European regulators have forced Lloyds to sell the branches after it accepted a Government bailout during the credit crunch.

The state ended up with a 40.6 per cent stake in Lloyds and 83 per cent of Royal Bank of Scotland after a similar bailout, and selling the branches would mark an important initial first step towards disposing of its Lloyds holding.

Sources added Lloyds was also considering easing the capital burden for prospective buyers, to facilitate the sale process.

A Lloyds spokeswoman said: “The process is still moving ahead. We’re still looking to find a buyer by the end of the year.”

Yorkshire Bank owner National Australia Bank is understood to have withdrawn from the bidding last month, put off by the high price tag and large funding gap.

The portfolio includes assets of £64bn and liabilities of £32bn.

At a loan-to-deposit ratio of 130 per cent, which Lloyds and other banks are striving to get below, that could leave a funding gap of up to £22bn.

Lloyds’ fallback option would be to spin off or float the branches, but stock market volatility makes a sale its preferred option.