Co-op plan to take over Lloyds branches 'facing difficulty'

http://www.guardian.co.uk/business/2013/feb/08/co-op-lloyds-branches

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Doubts were emerging on Friday night about the Co-operative's plan to take control of 632 Lloyds Banking Group branches, amid speculation that the deal was facing difficulty.

Lloyds was forced to put the branches up for sale by the European commission as part of the conditions attached to its £20bn taxpayer bailout in 2008. The deal, codenamed Project Verde, affects 4.8 million Lloyds customers and 7,000 staff who currently work in the branches.

The deal to sell branches to the Co-op is intricately financed. The mutually owned Co-op is to pay £350m initially, through an issue of bonds. Another £400m could be handed over by 2027. Lloyds is also providing £1.5bn of capital for the branches, which are to be spun out by the bank under the old TSB brand.

Lloyds executive Paul Pester has been lined up to run the enlarged group, which would have a total of 974 branches, a 7% share of current accounts and would become a rival to the big four banks – Lloyds, Royal Bank of Scotland, HSBC and Barclays.

Both sides insisted on Friday night that talks about securing a deal, formally announced in July after months of negotiation, were continuing and attempts were still being made to reach a formal sale and purchase agreement.

Lloyds, though, is known to be keeping the option of a stock market flotation of the Verde business on the table. It has been pressing ahead with the separation of what is to become TSB with this in mind. Lloyds took over the Trustee Saving Bank in the 1990s and branded itself on the high street as Lloyds TSB under the black horse logo.

When the deal was announced Lloyds said it planned to rebrand the Verde branches to TSB from summer 2013 and transfer them to the Co-operative when the deal was completed, scheduled at the time for November 2013.

A spokeswoman for the Co-op, which has an empire spanning food retail, funeral homes and pharmacies, said that the group remained in "active discussions" and was "working towards the deal."

Kickstarting the sale of the Verde branches was one of the first actions taken by António Horta-Osório when he became chief executive of Lloyds in March 2011.

A Lloyds spokesman said: "We are continuing negotiations with Co-op and are making good progress in creating a standalone challenger bank. We expect to have a separate TSB branded bank on the UK high street from the summer."

Horta-Osório joined from Spanish bank Santander, which had wanted to buy branches from RBS. However, last year it pulled out of the acquisition of 316 branches amid IT issues. RBS is also being forced to sell off parts of its business by Europe because of the bailout of the Edinburgh-based bank, and could conduct a stock market flotation of the branches, currently codenamed Rainbow.