Co-op walks away from Lloyds branches deal

The Co-operative Bank yesterday announced it had pulled out of the 'Project Verde' deal. Picture: PA

The Co-operative Bank yesterday announced it had pulled out of the “Project Verde” deal, warning that it was not “in the best interests” of its customers, prompting Lloyds to revert to its Plan B of a flotation of the bank.

The acquisition would have seen the Co-op create a “challenger bank” on the UK high street, with almost 1,000 branches and 11 million customers.

Lloyds was forced by European Commission competition rules to sell off 10 per cent of its network by the end of this year following a £37 billion government bailout.

It is to rebrand the branches under the historic TSB (originally the Trustee Savings Bank) name, before floating the new standalone bank on the stock exchange.

The future of the new TSB, which has about 200 branches north of the Border, is uncertain in a market where there are few obvious potential buyers. The bank previously held discussions with acquisitions vehicle NBNK after initial talks with the Co-op broke down, but restarted exclusive talks with the Co-op last summer.

However, banking experts yesterday signalled that in the right hands, the brand – which has a history stretching back to 1810 – could be attractive to customers in search of a more traditional form of banking.

Former Royal Bank of Scotland group chief economist Jeremy Peat said: “The older generation at least will remember something that was different and that they did approve of. It could be created as something with a certain kudos.”

John Wright, former chief executive of the Clydesdale and Yorkshire Banks, said: “TSB was perceived to be a very conservative, safe place to be.

“I think it is possible the brand value could still have some appeal.” However, he added: “There is currently a lot of uncertainty for the Lloyds customer.”

It is believed that Lloyds, which yesterday told The Scotsman it was “not closed” to offers from other banks, is likely to ask the European Commission for an extension to its December sell-off deadline – and could opt to sell TSB in tranches of shares.

Lloyds said customers would not be affected by the collapsed sale. “Customers don’t need to do anything and can carry on banking in the same way as they do now, accessing their accounts as usual,” it said in a statement.

It is thought a stock market flotation of TSB branches could raise more than £1bn for Lloyds – higher than the £750 million the Co-op had been due to pay.

The Co-op, which has a reputation as an ethical brand, had claimed the deal would be the “biggest shake-up in high street banking in a generation”, creating a bank with almost 1,000 branches and 11 million customers, but it said yesterday that it did not offer “a suitable level of return” or “acceptable risk”.

Co-op Bank group chief executive Peter Marks said: “After detailed and thorough consideration of all aspects of the Verde transaction, we have decided, at this time, that it is not in the best interests of our members to proceed with the transaction. Having worked closely and constructively with Lloyds we are naturally disappointed to have reached this conclusion.

Ken Macintosh, Labour finance spokesman, said: “This is bad news all round, for both banks and customers. I had hoped for a substantial new provider on Scotland’s high streets, which operates on the original principles of the original TSB bank. We could really do with a new ethical provider who could offer a traditional, reliable bank for savers, mortgage lenders or homeowners.”