Lloyds Banking Group’s long-running effort to sell 632 branches looked to be nearing completion last night as it announced it had agreed terms for a deal with Co-op Bank.
An update on the sale of the so-called Project Verde assets had been expected this week, and the taxpayer-backed group issued a brief statement yesterday shortly after the stock market closed saying it had made “considerable progress” with the Co-op and had re- entered exclusive talks over the sale.
It said: “The group and the Co-op now have an understanding on the commercial terms for the transaction. This is subject to agreeing satisfactory documentation, the approval of their respective boards, and further discussions with the Financial Services Authority, HM Treasury and the European Commission.”
The two groups had previously been in exclusive talks over the Project Verde sale, but these ended in April, opening the door to other parties, notably the acquisitions vehicle NBNK headed by Lord Levene, former chairman of the Lloyd’s of London insurance market.
Following last night’s news, NBNK said it expects to start the process of winding itself up, as there are no other UK banking assets available for sale that would meet its objectives.
Chief executive Gary Hoffman said: “We are disappointed that the door has now been closed on this opportunity, with the result that we will be unable to deliver our vision of banking, devoted to providing the level of service that customers want and deserve.
“We would have provided more local decision-making, flexible opening hours, new modern systems and a guarantee of no short-term bonuses – everything we believe that people want.”
The sale of the assets, including more than 180 Lloyds TSB branches in Scotland and the Intelligent Finance internet banking business, was ordered by the European Commission in return for the £17 billion taxpayer bail-out the group received during the 2008 financial crisis.
The Co-op, which is Britain’s biggest mutually owned business, will triple the size of its banking business if the deal goes ahead, but last night it warned: “There can be no certainty that a transaction will be completed.”
Vivek Raja of Oriel Securities said he believes that, under the terms of the deal, it is likely that Lloyds will continue to offer the Verde business “ongoing support” once the deal has completed.
He added: “That could potentially be a bottomless pit for Lloyds.”
Around five million customers would move from Lloyds to the Co-op if the sale does succeed, and the combined business would have around 7 per cent of the UK current account market.
Lloyds, which is about 40 per cent owned by the taxpayer, said the new entity would likely have equity capital of £1.5bn supporting it.
Gary Greenwood, an analyst with Shore Capital, said there were suggestions that the price of the bank has been slashed by as much as 50 per cent from the previous estimates of between £1.5bn and £2bn.
“I always had doubts as to whether the Co-op could execute the deal at the prices being talked about,” he said. “This is perhaps why the price has been lowered and we seem to be moving forward.”
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