Co-op remains favourite to land Lloyds branches as end looms for sell-off

By MARTIN FLANAGAN
Published on 24/06/2012 01:54

THE long-running auction of 632 Lloyds Banking Group branches should conclude this week amid concerns that the fall-back of a flotation will struggle to get off the ground.

Co-op Bank remains favourite to land the package of assets against consolidation vehicle NBNK Investments. Lloyds is believed to have privately rejected the idea of an alternative flotation of the so-called Project Verde assets given the Eurozone financial turmoil.

Lloyds has said it would update the stock market on the divestment by “the end of the second quarter” and a decision is expected by Friday.

The sale of the branches by November 2013, including 185 Lloyds TSB Scotland branches and the Intelligent Finance internet banking business, was ordered by the European Commission in return for the £17 billion taxpayer bailout the group received during the 2008 financial crisis.

One source close to the auction said: “We must now be at the point where a definite decision has to be made and heads of agreement signed on a sale.

“You only have to look at the sale by Royal Bank of Scotland of over 300 branches to Santander two years ago, and that is still not complete for technical reasons. To meet the EU deadline, Antonio Horta-Osorio [Lloyds’s chief executive] and the Lloyds board have to make a decision now.”

One analyst said: “We expect Lloyds to come down on the side of a straight sale to NBNK or the Co-op. Trying to get a bank flotation away over the next 18 months, given the Eurozone volatility and economic headwinds, feels less like a runner with each passing week.”

A Lloyds spokesman said: “We will update on the situation around the end of Q2. We are still making good progress.”

The bank announced the Co-op was its preferred exclusive bidder for the Project Verde assets, which also include 250 Lloyds and Halifax branches in England and Wales, last December.

However, an unofficial end of the March deadline passed, with both parties saying the talks were “complex” and Co-op boss Peter Marks saying a deal could not be guaranteed.

Lloyds ended the exclusivity agreement on 27 April, allowing NBNK back into the tussle.

Regulatory problems have dogged the Project Verde auction over the past year. Negotiations are also said to have proved tricky on price in this difficult banking climate, with estimates the branch network will fetch anywhere between £900 million and £1.5bn.

The Financial Services Authority is known to have been concerned about the degree of financial expertise on the Co-op’s parent board, even though there is a subsidiary board for the banking operations. The regulator has also raised private queries about the length of time the mutual has taken to integrate its Britannia Building Society acquisition in 2009.

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