Lloyds sale may see fewer loans offloaded

Three suitors are still in the auction to buy the 632 branches, which the banking giant has been told to sell by European authorities in a move likely to fetch more than £2 billion for the 41 per cent state-owned lender. Sources say more detailed bids were due by the end of this month. While the package for sale includes some £64bn of loans and deposits of £32bn, a buyer has the option, under the terms of the disposal, to take fewer assets to reduce the size of the gap with liabilities. The buyer is likely to take loans of about £48bn, one source said.

The three potential bidders are understood to be start-up bank NBNK, buy-out firm Sun Capital Partners and mutually owned lender Co-operative Bank.

The UK government-appointed Independent Commission on Banking (ICB) this week stopped short of telling Lloyds to sell more branches, but said the business to be sold should have a loans/deposits ratio near the retail banking industry norm of about 130 per cent and the buyer should have a 6 per cent share of the current account market.

Lloyds said it was confident the loan/deposit ratio will be below the required level when the deal is completed in 2013.

Based on loans of £48bn, the ratio would be 150 per cent, but Lloyds has told bidders the amount of deposits and current account market share could be increased through its Cheltenham & Gloucester brand.

NBNK has held talks to buy National Australia Bank’s UK operations comprising the Clydesdale and Yorkshire banks to give it an infrastructure to bolt the Lloyds branches on to, or could bid as a start-up with no initial branch network.

The auction – codenamed “Project Verde” by Lloyds boss Antonio Horta-Osorio – offers a chance to create Britain’s seventh-biggest bank in one fell swoop. The sale includes 4.6 per cent of personal current accounts and 5 per cent of the mortgage market, contributing about £500 million of pre-tax profit in 2008 and income of about £1.4bn.

The Lloyds development emerged as the planned flotation of Santander’s UK arm is likely to be put back to at least 2013 partly because of uncertainty caused by bank ring-fencing.

Initial hopes of raising £3bn through the sale of a 20 per cent stake later this year have already been frustrated by market turbulence.

Now sources have said that the float is unlikely to happen until 2013 at the earliest.

Even though Santander UK is predominately a retail bank, between 5 per cent and 10 per cent of its assets would fall outside the definition of what can be included within a retail ring-fence.