Lloyds branch sale: Cut-price Co-op deal will change the face of high street banking

By TERRY MURDEN
Published on 19/07/2012 22:12

CO-OPERATIVE Bank today sealed a cut-price deal with Lloyds to acquire a parcel of assets that will change the banking landscape.

The mutual will take on 632 high street branches and the Cheltenham & Gloucester mortgage business for £750 million – half the figure expected and in spite of rival bid vehicle NBNK saying it would have paid more.

The deal will see 2,000 Scottish bank staff transfer to the new owner, but it will not include Edinburgh-based online bank Intelligent Finance which was pulled from the sale. Lloyds said its future was now under review.

Lloyds’ name will disappear from Scottish towns and cities following a rebranding of the 185 branches north of the Border and those being sold in England and Wales to TSB. The Co-op has yet to decide whether it will operate under the TSB name. It said it will be seeking “substantial” premises in Edinburgh and London for its expanded operations which create a “challenger” bank with a further 4.8 million customers and almost 7 per cent of current accounts. The deal triples its branches to 1,000 or 10 per cent of the total banking market.

Part-nationalised Lloyds is offloading the branches to meet European Union rules on state aid following its taxpayer bail-out and hopes to complete the sale by the end of November next year. Under the deal, the Co-operative will pay £350m initially and up to £400m based on performance until 2027 based on performance targets.

The Treasury welcomed the announcement, which it said formed part of a raft of measures to reform the banking system and improve competition. 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 announcement comes after lengthy talks and mounting speculation that the deal was on the rocks. Lloyds chose the Co-op as its preferred bidder in December, but sale plans suffered a series of delays and initial hopes to sign a deal by the end of March were dashed due to regulatory concerns.

It is also thought the price was hit by the sharp deterioration in the economy, as well as a reduction in mortgage loans to ensure assets and liabilities are more evenly matched, a key reason why Intelligent Finance was rejected.

Peter Marks, group chief executive of the Co-op, said the deal would deliver “the biggest shake-up in high street banking in a generation”.

In the light of recent IT problems at Royal Bank of Scotland/NatWest, he said particular

effort would be made to ensure there were no problems in taking over the Lloyds’ businesses. “We will be working hard to make sure the transition is seamless,” he told The Scotsman. He said the deal was about growth and, in Scotland, it would “complete the set” of businesses it operates.

Andrew Tyrie, chairman of the Treasury select committee, said: “This deal provides an important opportunity to increase competition and to ensure challenge to the big five banks. The new bank will have no legacy

issues. That is good news.”

John Walker, national chairman of the Federation of Small Businesses, said: “This is good news. With four in ten small firms refused credit by the main high street banks, this challenger bank will open up competition and should help small firms access the cash they need.”

A sticking point in the deal had been the size of liabilities that the Co-op was expected to shoulder. Under the agreement, the funding gap has been closed so that a balance sheet of just £24bn transfers to the new owner. In June last year, Lloyds boss Antonio Horta-Osorio suggested this could be as much as £64bn in loans and £32bn of deposits.

The Co-op, which is also well-known for its funeral services and its food, already offers a range of current accounts, credit cards, savings and mortgages.

Its trusted and ethical reputation is also something commentators said would have a strong pull and attract new customers as it beefed up its presence on the high street. It says it is benefiting from the loss of trust in other banks, with the number of customers applying to move their accounts to the group up by 54 per cent in the last four weeks during which the sector has suffered the IT debacle, the row over rate-rigging and the scandal over interest rate swaps.

Sarah Brooks, director of financial services at Consumer Focus, said it was vital that the Co-op used its new status to offer a point of difference and not just “more of the same”.

A full list of the branches being transferred to the Co-op can be found at www.lloydstsb.com/media/lloydstsb2004/pdfs/Verde_transferring_branches.pdf