Co-op moves a step closer to taking over Lloyds’ branches

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LLOYDS Banking Group said last night it had reached an understanding over the terms of a deal to sell over 600 branches to the Co-operative Group, creating a new competitor for the established but unpopular high street banks.

Lloyds, 40 per cent owned by the taxpayer, said it was ending talks with new banking venture NBNK, which will now be wound up.

“The group and Co-op now have an understanding on the commercial terms for the transaction.

“During this final stage of the discussions, and in order to proceed to heads of agreement, negotiations with the Co-op will proceed on an exclusive basis,” Lloyds said in a statement.

The parties are expected to move to heads of agreement stage in the next few weeks.

NBNK, set up by former Lloyd’s of London insurance head Peter Levene and run by former Barclays and Northern Rock executive Gary Hoffman, said it had concluded that there are no other UK banking assets available to buy.

The Verde business has around 5 million customers and represents 6 per cent of all bank branches in Britain.

When combined with the Co-op business, it will have 7 per cent of the total market for current accounts in Britain.

The UK retail banking industry is dominated by five big players – Lloyds, RBS, Barclays, HSBC and Santander.

However, the recent software failure at RBS has added to public disillusionment with the established players and Britain has been keen to stimulate competition within the industry.

Lloyds must sell the branches, codenamed Verde, under European State Aid rules, having been bailed out by the taxpayer in 2008.

The Treasury gave a positive reaction to the agreement.

“Although the deal has not been finalised, we warmly welcome this development as a positive step in the process of delivering the Lloyds divestment and the benefits that will have for competition and the mutuals sector,” it said.

The Unite union said it is seeking assurances that there will not be compulsory job losses.

Lloyds said the proposed transaction would be based upon it transferring a smaller balance sheet into the new business than previously anticipated, so there will be no funding gap in terms of assets and liabilities.

It is likely to have equity capital of £1.5bn supporting it.

A stock market flotation of the business had appeared to be emerging as the most likely option with regulatory obstacles proving a tough hurdle for both the Co-op and NBNK to overcome.

The FSA had sought assurances over the capital position and structure of the Co-op and whether its board had the experience to run a major bank.