Lloyds' branch sale to Co-op falls through

 

Co-operative Group chief executive Peter Marks: "There will be other opportunities to expand our bank in the future"

The planned sale of 631 UK bank branches by Lloyds Banking Group to the Co-op group has fallen through.

The Co-op blamed the continued economic downturn and tougher regulatory environment imposed on banks.

Lloyds said it will now seek to sell the branches as a stand-alone bank through a stock market listing.

It had been hoped that the Co-op's purchase of the branches would create a bigger competitor to the main high street banks.

"I think it is very disappointing. I was really hoping this would happen," Business Secretary Vince Cable said in an interview with the BBC in Brazil.

"We do need more competition and we need more diversity in business lending, and having the Co-op, a mutual, a new player in the small business lending, would have been a big step forward."

Lloyds' chief executive Antonio Horta-Osorio agreed.

"We are disappointed that the Co-operative Group is unable to complete this transaction," he said.

The sales of the branches, known as Project Verde, was demanded by European regulators as the price for being bailed out by the UK government during the financial crisis.

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For the Co-op and the banking market, the ramifications are much more serious.”

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The Lloyds statement said: "The Co-operative Group's board has decided that they can no longer proceed with a purchase of the Verde business given their view of the impact of the current economic environment, the worsened outlook for economic growth and the increasing regulatory requirements on the financial services sector in general."

During the summer the branches will be branded as TSB Bank, and the group will operate as a separate business within Lloyds ahead of a sale.

The Co-op's chief executive, Peter Marks, said: "After detailed and thorough consideration of all aspects of the Verde transaction, we have decided, at this time, that it is not in the best interests of our members to proceed with the transaction.

"Against the backdrop of the current economic environment, the worsened outlook for economic growth and the increasing regulatory requirements on the financial services sector in general, the Verde transaction would not currently deliver a suitable return for our members within a reasonable timeframe and with an acceptable level of risk."

The BBC's business editor, Robert Peston, said the Co-op's decision was a blow for the Treasury, which has been backing attempts to create powerful competitors to the UK's big high street banks. He said that the Co-op will now review the future of its banking business.

Labour's shadow financial secretary to the Treasury, Chris Leslie, said "his should serve as yet another warning to George Osborne that his economic plan is failing and he must urgently act to kick-start our flatlining economy".

But Mr Cable said "the Co-op were struggling to raise the necessary capital because the regulatory requirements at the moment are quite demanding for capital for new banks, and I think they just weren't able to achieve that in a way that was commercially acceptable to them"

"But the government can't intervene in the process - it was ultimately a commercial decision for them."

Challenger banks

Lloyds, which is 39%-owned by the government, had a deadline of November 2013 to complete the sale in order to meet European Commission competition rules. But there have been reports over the past few months that the Co-op was going cool on the acquisition.

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Millions of Lloyds customers face an element of uncertainty after a proposed deal to sell 631 branches to the Co-op collapsed”

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A flotation is unlikely to be possible until the second half of 2014, which would mean the UK government and Lloyds asking Brussels to extend its late 2013 deadline for the sale.

"I am hoping that the sell-off, which has to happen under European Union rules, will now proceed with another buyer," Mr Cable said.

The Co-op agreed in 2012 to buy the branches.

This involved the potential transfer of 4.6 million customers, including 3.5 million in England and Wales and the remainder in Scotland.

Customers in England and Wales had already received letters telling them of the move and giving them the option to stay with Lloyds. This information is still relevant, as customers of the branches being sold will still become customers of the new TSB Bank.

The aborted takeover would have created Britain's seventh-biggest bank with about 5% of personal current accounts and mortgage market and about 10% of the branch network.

A Treasury spokesman described the Co-op's move as "a commercial matter." However, he stressed that government remained committed to encouraging so-called "Challenger" banks to increase competition on the high street.

 

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  • rate this
    -1

    Comment number 248.

    Disappointed as I am not to have a Co-Op branch on our High St, perhaps government minds will now focus on the real problem. Banks create, out of nothing, the money our economy runs on and they create it as debt. That is the underlying reason for our world banking crisis. Creating money (debt free) should be under State control. Full Reserve banking would start us on the road to stability.

  • rate this
    -1

    Comment number 246.

    Stupid reasoning. The gov is disappointed because the move was hoped to increase banking competition on the high street. But if you're simply taking 600 branches of one bank and attach them to another, how does that increase competition?

  • rate this
    +1

    Comment number 245.

    If we want sectors of the economy to enjoy the benefits of competition, then arrange for any business, when reaching a turnover of greater that 20% of the market sector to pay substantially more tax.

    Companies will then feel the urge to 'float off divisions' or diversify operations etc.

    We would then have much more competition in each sector of the economy.

  • rate this
    +1

    Comment number 240.

    Starting with Girobank through to the demutualisation of the Building Societies, successive governments have enabled the concentration of financial services in this country into the hands of a few large banks.
    Most European countries still have a diversified banking sector, with tighter regulation too.
    Can't see any of the main parties doing anything about it.Retail v 'investment' banking, when?

  • rate this
    +15

    Comment number 198.

    As a Coop member and Coop bank account holder I'm glad the directors are taking care to avoid the recklessness that got other institutions into trouble. The Coop is not 'too big to fail' and their credit worthiness has been written down as a result. I don't mind for a minute.

 

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