Watchdog happy with NBNK’s Lloyds bid

New banking venture NBNK said regulators at the FSA are happy with its plans to buy 632 branches from Lloyds, putting pressure on rival bidder The Co-op.

NBNK, led by former Northern Rock boss Gary Hoffman, said it approached the FSA at Lloyds’ request to address regulatory concerns about its proposal.

“The FSA has confirmed to NBNK that the process of engagement is satisfactory from its point of view at this stage,” NBNK said.

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Lloyds, which is 40 per cent owned by the Government following a 2008 bailout, ended a period of exclusive talks with the Co-Op in April although the Co-op remains its preferred bidder.

The Co-op was chosen as preferred bidder in December, but hopes of signing a deal by the end of March were dashed due to protracted talks with regulators.

NBNK was set up to create a new high street player to compete with the big four banks; Barclays, HSBC, RBS and Lloyds.

Its proposal for the Lloyds’ branches taps into the bank’s ‘plan B’ option for a flotation.

By underwriting any demerger it will give shareholders in Lloyds the choice between taking a new share in the branch business or accepting cash.

It said in its annual report yesterday: “NBNK can create what everyone wants: a safe, secure and successful UK-focused consumer and small business bank.”

The Lloyds branches, known as Project Verde, are being sold as one of the conditions imposed by the European competition regulator on the taxpayer-backed bailout of the bank.

Lloyds received about £20bn of state aid during the 2008 financial crisis.

Mr Hoffman said: “Having continued to engage constructively with Lloyds, I believe we have provided sufficient information to enable negotiations to progress for the sale of Verde to NBNK.”

The sale could fetch up to £1.5bn and create Britain’s seventh-biggest bank, with a 4.6 per cent share of current accounts and a five per cent share of mortgages.

NBNK said discussions held with Lloyds since the exclusivity period finished had “progressed positively” although it has yet to enter formal talks at board level.

Lloyds confirmed that it has held a number of meetings with NBNK, which had clarified parts of its proposal.

“We are now sharing more information with them, so that they can provide further clarity on other aspects of their offer,” the bank said.

Lloyds is also preparing plans for a stock market flotation of the branches and could ask European regulators for an extension to a November 2013 deadline for the sale if it fails to find an outright buyer.

The regulatory concerns over NBNK’s proposal are predominantly around the venture’s financial strength.

NBNK is understood to have held talks with Middle Eastern sovereign funds in order to bolster its bid, in additio n to major UK blue chip investors. Its major institutional backers include Invesco, Aviva and Baillie Gifford.

NBNK said that any concerns over its financial firepower are unfounded.

“NBNK’s investors have remained supportive of and committed to its objectives, underlining the company’s ability to finance the acquisition of Verde,” it said.