Co-op taking over Lloyds branches

The Manchester-based mutual will balloon to about 1,000 branches once the deal completes late next year, giving it around 10 per cent of the UK’s bank branch network.

The Co-op said its purchase of the branches, known as Project Verde, is the most “significant announcement in high street banking for a decade” and will help repair the tarnished image of finance.

“People have lost trust in the financial services sector,” said Co-op chief executive Peter Marks. “Now we will be able to provide a big bank, a challenger bank, that people can really trust.”

Verde includes almost 40 Cheltenham & Gloucester and Lloyds TSB branches in Yorkshire. Combined with the Co-op’s 20 branches in the region, it will have about 60 branches in Yorkshire. Five years ago the Co-op had just 90 bank branches nationally.

About 4.8 million customers and 8,000 staff and are expected to transfer with Verde to the Co-op, which took over Britannia Building Society in 2009.

The Co-op’s share of the UK’s current account market will surge from about two per cent to seven per cent. Mr Marks said it will join the “premier league” of high street banking, standing alongside Royal Bank of Scotland, Lloyds, HSBC, Barclays and Santander.

It is paying £350m up-front for the branches, and Lloyds could earn another £400m by 2027 depending on how the bank performs.

Mr Marks said the deal was a “fair price” for Lloyds and the taxpayer. Lloyds, 40 per cent owned by the taxpayer, is expected to make a loss of about £750m on the deal, which had a book price of about £1.5bn.

The Co-op is funding the deal through the issue of £350m of debt, underwritten by Lloyds. Lloyds will transfer about £24bn of loans across, which will be equally matched with deposits.

Lloyds was forced to sell the branches by the European Union, as a condition of taking state aid following its rescue takeover of Halifax Bank of Scotland.

It is thought to have turned down a higher offer from new banking outfit NBNK.

Lloyds chief executive António Horta-Osório said: “We believe the Co-operative will be a good owner for our business, customers and colleagues, and the combined banking business will be a significant competitor on the high street with nearly 10 per cent of today’s UK branch network.

“In agreeing to move ahead with the Co-operative we provide greater certainty for our customers and for our shareholders.”

Chancellor George Osborne said: “This is another step towards creating a new banking system for Britain that gives real choice to customers and supports the economy. The sale of hundreds of Lloyds branches to the Co-operative creates a new challenger bank and promotes mutuals.

“This follows the sale of Northern Rock to Virgin Money in January and represents another important step towards a more competitive banking sector.”

Sir Richard Branson’s Virgin bought the nationalised lender earlier this year for £747m.

The Co-operative Bank will be headed by Paul Pester, who is already running the Verde business.

John Walker, national chairman of the Federation of Small Businesses, said: “This challenger bank will open up competition and should help small firms access the cash they need.”