DCSIMG

Comment: Co-op’s deal with Lloyds looks shakier than ever

Terry Murden. Picture: Phil Wilkinson

Terry Murden. Picture: Phil Wilkinson

  • by TERRY MURDEN
 

THE decision to force Lloyds and Royal Bank of Scotland to dispose of assets as a condition for taking taxpayers’ money at the height of the banking crisis is beginning to look like a flawed process.

RBS was left with 316 unwanted branches in October when Spanish rival Santander pulled the plug on a £1.6 billion deal. Those branches have been put back on the market.

On Friday, there were more questions about the Co-op’s acquisition of 632 branches of Lloyds, which is said to be pushing a flotation up the agenda because of worries that the deal may falter.

The two parties insist they are making progress, but the agreement has never looked entirely convincing.

In March last year, Co-op chief executive Peter Marks admitted the deal might not go ahead, and a month later Lloyds ended exclusive talks with the mutual to consider other bids. Doubts again emerged before Christmas that the Co-op would complete.

The regulator has raised questions over the Co-op’s reserves, while the £750 million price agreed last July was criticised for being half the estimate. Marks, who is retiring, bragged that he had taken the shirt off the back of his rival.

That could prove a hollow boast if the deal collapses. It will also be disappointing for those who see the Co-op as the ethical alternative on the high street.

As in the case of the RBS-Santander failure, IT integration issues have been blamed, though that looks like a smokescreen for other underlying problems and RBS insiders rubbished the Spanish bank’s claims.

The Co-op is an established bank, but the deal would add 4.6 million customers, tripling its size and raising concerns about its ability to cope with such expansion.

The transfer adds to the uncertainty for customers who are already puzzled by what it means. The Lloyds name will disappear from Scotland in favour of its Bank of Scotland subsidiary and those Lloyds branches being sold will initially be rebranded TSB Bank and then possibly the Co-op, assuming the deal goes ahead.

The changeover is also not without its costs. Lloyds will note that RBS had threatened to sue Santander for as much as £1bn to cover the cost of re-running the sale process, preparing for a possible stock market listing and to cover possible penalties imposed by the European Commission if the bank failed to meet its end-2013 deadline.

Whatever the true state of play between the Co-op and Lloyds, the former’s new boss Euan Sutherland will have to hit the ground running when he takes over in May. By then, however, plans for an expanded bank may have turned to dust.

Fallen Angel shows risks

After a series of positive developments in Scotland’s nascent life sciences sector, the week ended with a setback when Edinburgh-based Angel Biotechnology plunged into administration.

Once again it was because of funding issues and, in Angel’s case, the failure to secure an agreement with potential overseas partners. Quite simply, Angel was about to run out of cash.

This has been a sobering message following the encouraging news of new tenants at the Edinburgh BioQuarter and further investment into BioCity in Lanarkshire.

The sector appears to be gaining some traction and confidence, but Angel’s experience clearly demonstrates the high risks involved in investing in this sector.

Twitter: @TerryMurden1

 

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