Blackfriar: A reversal to Plan B may not be all bad news for Lloyds

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REPORTS that the Co-operative Bank’s deal to buy more than 600 branches from Lloyds could be under threat due to a £1bn capital hole at the Co-op looks like bad news for Lloyds.

The last thing Lloyds, which is 41 per cent owned by the UK taxpayer, needs right now is a return to the drawing board.

Yet if the deal does fall through, which is looking increasingly likely according to insiders, it might not be all bad news for Lloyds.

If Lloyds pursues Plan B, a flotation of the 632 branches, it could be a better option than a sale to the Co-op.

Banking analyst Gary Greenwood, at Shore Capital, says the terms of the sale to the Co-op, led by Bradfordian Peter Marks, appear to be “fairly punitive” from a Lloyds perspective.

Meanwhile, a significant rally in bank shares over the past 12 months makes an IPO a much more attractive option than it was a year or so ago.

“Prior to agreeing a sale to the Co-op, Lloyds had been working on an alternative IPO option, so reviving this plan would not be too difficult, in our opinion,” said Mr Greenwood.

“So while the deal falling through would create some uncertainty, it may not necessarily be a bad outcome for Lloyds investors.”

Analyst Cormac Leech at Liberum Capital said the impact of an IPO be negligble .

In addition much of the cost of splitting off the banks has already been incurred. Lloyds is now Liberum’s top pick among UK banks on valuation. The shares closed up one per cent at 53.7p last night.

They fell to a low of 25p last May, but have been steadily climbing over the past nine months. Both Mr Greenwood and Mr Leech have a ‘buy’ recommendation on the shares.

We should find out more about Lloyds plans for the 632 ‘Project Verde’ branches when the bank announces its annual results tomorrow.

Increasing diversity in banking has become a tired phrase. The closed nature of the personal current account (PCA) market says it all.

In 2008 the big four banks had a PCA share of 64 per cent. But by 2010, Lloyds, RBS, Barclays and HSBC held 77 per cent of the market, largely down to the Lloyds/HBOS merger.

They now have about 74 per cent, according to the Office of Fair Trading.

So Yorkshire Building Society’s possible expansion in the space would be a welcome move.

Its acquisition of smaller rival Norwich & Peterborough in 2011 gave it a valuable platform, as the lender came with an established current account business.

It does not say how many current accounts it has, but they grew by 24 per cent during the year as big banks tried to outdo each other with Libor-rigging and money laundering scandals.

So perhaps a sea change is finally happening, and bank customers are less inertia-prone than those percentages suggest.

Chris Pilling, the Yorkshire’s chief executive, has not yet made the “transformational decision” whether to launch current accounts across the group yet, but it is on the “list to do”.

Taking the building society beyond its core of home loans and savings and into day-to-day transactions would add a whole layer of complexity to its business.

And while the Yorkshire, with its trusted brand and mutual ethos, would be a welcome addition, it can be a risky game. Basic transactional banking earns slender margins, hence the repeated warnings of an “end to free banking”.

The real money-making opportunities lie in fees and add-ons such as packaged accounts.

N&P’s Gold Classic current account charges £5 if £500 is not deposited per month and has a string of penalty charges including a £19 fee if an account goes overdrawn without permission. It even includes much-maligned card and wallet protection.

Should it take the plunge with current accounts, the Yorkshire has a growing platform to offer them from.

While others are retreating from the high street, it is pursuing a costly expansion, opening another four branches this year, part of a £160m investment plan. “Our challenge is to make sure we grow sustainably,” said Mr Pilling.

Refreshingly, profits are not the Yorkshire’s only motivation.

Blackfriar notes Sir Rodney Walker is to stand down after more than a decade as non-executive chairman of Goals Soccer Centres plc, the five-a-side football centre operator.

The Wakefield businessman might find himself with some more time on his hands.

There are certainly lots of opportunities out there for someone with a contacts book like his.

One vacancy that springs to mind is the chairman’s (unpaid) job at the Leeds City Region Local Enterprise Partnership, which is looking to make an appointment by the end of this financial year.