Lloyds and NBNK yet to hold formal talks on sale

LLOYDS Banking Group is playing “hardball” with banking consolidation vehicle NBNK, according to senior sources, following the regulatory knockback the lender received during its negotiations with the Co-op to try and offload 632 branches.

It is understood there have been no formal face-to-face negotiations between Lloyds chief executive Antonio Horta-Osorio and senior members of NBNK in nearly a month since exclusive talks with the Co-operative over the “Project Verde” branches ended, allowing the rival suitor into the sale process.

Weekend reports claimed the only contact since an exchange of letters between Horta‑Osorio and NBNK chairman Lord Levene at the end of April was further correspondence.

A source close to the talks said: “You can see why things are far from clear-cut. Well into the exclusive talks with the Co-op on the sale of the Project Verde assets it became clear the Financial Services Authority (FSA) wanted regulatory clarity on issues like the Co-op’s management strength and capital levels.

“The FSA has similar questions for NBNK and so it is a case of ‘once bitten, twice shy’ for Lloyds. They don’t want to be in a similar position with any would-be NBNK offer.”

While the exact status of discussions between the groups is unclear, NBNK maintains it has been proactive in trying to push the matter along with both Lloyds and the regulator.

A spokesman for NBNK said yesterday: “Following Lloyds Banking Group’s announcement that exclusive negotiations for its sale of the Verde asset package have ceased, NBNK has provided documentation to and been in regular discussions with Lloyds to provide the necessary assurances that will enable negotiations to commence.

“During this time, NBNK has provided a significant amount of information to Lloyds and, following further discussions, looks forward to being invited back into the Verde sale process as soon as possible.”

Gary Hoffman, NBNK’s chief executive, is understood to have had phone conversations with Horta-Osorio on the ticklish regulatory issues surrounding the sale, but not to have met face-to-face since exclusive talks with the Co-op were ended.

However, it is thought the two respective chairmen, Lloyds’s Sir Win Bischoff and Lord Levene, both City doyens, are likely to have met on the Square Mile circuit and informally discussed a possible NBNK bid.

Meanwhile, analysts are divided on whether the apparent stalling of the three-way negotiations have shortened the odds on the option for a flotation of the branches, which include 184 Lloyds TSB outlets in Scotland.

One said: “The longer talks with the Co-op and NBNK seem stymied by regulatory issues some will think Lloyds and its advisers, JP Morgan and Citigroup, will prefer a flotation instead. But the European Union deadline for divesting the assets remains November 2013.

“And floating a bank given the eurozone volatility and economic headwinds, and the likely continuation for an extended period of those negative factors, would not be straightforward.”

Lloyds and the FSA declined to comment yesterday.