Lloyds bigs up the Co-op

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With 1,000 branches, 10% of all branches of UK banks, and 7% of the current account market, the enlarged Co-op should represent serious new competition to the giants of British banking.

And for the Co-op, it looks like an amazingly good deal. It is paying a maximum of £750m for 632 branches and for capital that Lloyds is bestowing on the business of £1.5bn - which means there will be a loss on the transaction of up to £750m for Lloyds.

What the Co-op will be getting is a very solid bank: £24bn of mortgages, matched to the tune of 98% by highly desirable retail deposits.

Lloyds is also underwriting the fundraising by the Co-op (the sale of perpetual subordinated debt, since you asked) to pay for the down payment of £400m. So, in effect, Lloyds is lending the Co-op the purchase price.

The Co-op's bank will operate off Lloyds' IT systems, and Lloyds is providing the senior management of the Co-op's enlarged bank.

It is hard to think of any deal in which the seller has provided quite so much help to the buyer. This transaction would be the equivalent of you selling me your house for half its value, in return for an IOU from me, whose value you would be guaranteeing - and you would be throwing in all the furniture and all your possessions (and much of your family) for nothing.

But Lloyds had no choice. It was forced by European regulators to make the divestment. And it felt there was no better deal on offer (and as a semi-nationalised bank, Lloyds' management took some comfort from the chancellor's enthusiasm for bigging up the Co-op)

There is one other thing that the Co-op is getting, and that is the TSB brand. For a few years, the branches being sold by Lloyds will be rebranded as TSB, which is one of the few banking names untainted by the financial and ethical disasters of recent times.

The idea of the rebranding is to deter 4.8 million Lloyds customers, who are being asked to transfer to the Co-op, not to leave in droves: an attempt will be made to reassure all of them that they would be leaving Lloyds for a bank, that if anything, is at least as strong as Lloyds (which may not be that hard, given all the financial, managerial and IT help that Lloyds is handing over).

Robert Peston Article written by Robert Peston Robert Peston Economics editor

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  • rate this

    Comment number 34.

    Whilst I used to be a TSB customer, I do think that the decision to automatically transfer the customers to Co-op/TSB to be a bit much. Account holders should be consulted before their financial information, savings etc are sold off to a 3rd party. I would want to see what is on offer first if any of my accounts are affected and then make that decision myself.

  • rate this

    Comment number 33.

    Lloyds is also underwriting the fundraising by the Co-op (the sale of perpetual subordinated debt, since you asked) to pay for the down payment of £400m. So, in effect, Lloyds is lending the Co-op the purchase price.

    Lioyds is partly owned by the taxpayers (us) it's sold on the cheap and we underwrite the deal... I will give myself a minus for not quite seeing this as a good deal.

  • rate this

    Comment number 32.

    "£24Bn of mortgages"


    Robert says that as if it's a good thing, but that depends entirely on the composition: location and types of properties, profiles of borrowers and so on.

    I trust someone's done their research.

    10.thomas betham: QE's mainly for this reason, to prop up the value of such bank assets, I'd say.

  • rate this

    Comment number 31.

    I was quite pleased until I heard that management is moving over to the Co-Op too! There had to be a downside.

  • rate this

    Comment number 30.

    As someone who has a number of accounts with one of the branches to be moved, I am wondering just how much of a foul-up will occur as the sort-codes and account numbers get changed with this transfer to the coop.

  • rate this

    Comment number 29.

    Who would have thought it, giving bank branches away for almost nothing.

    Mr Milliband take note, not a lot of enthusiasm in the market place for a wholesale sell off of bank branches. if this is an example. Also not sure that all the Lloyds customers involved will be delighted with this move.
    As a tax payer this is a loss making deal, do we really want more!

  • rate this

    Comment number 28.

    8.Eddy from Waring
    27 Minutes ago

    Thanks for the support.

    You say "the FSA was not happy with the then makeup of the Coop's board."

    I'd say that was a recommendation of the Coop's board, wouldn't you ;o)

  • rate this

    Comment number 27.

    "Lloyds bigs up the Co-oP"

    Dearie me. No wonder children can't use correct English. The BBC ought to hand its head in shame at this wording.

  • rate this

    Comment number 26.


    I don't think that'd necessarily implied, though certainly possible.

    I was part of a TUPE, and we continued to use the seller's IT for some time, for payroll etc. to ensure continuity.

    Whether this position's transitional or not isn't clear to me.

  • rate this

    Comment number 25.

    On BBC Breakfast, the Coop were stressing that all transferred customers would continue to enjoy products with exactly the same rates, terms and conditions. Now you suggest the same management and IT too.

    If the regulators' motive was competition, this seems to be the worst kind of tokenism. Better to create a bank with competing products and then ask customers which one they want to go to.

  • rate this

    Comment number 24.

    Ohhh nooo. the coop bank is the only bank to stay out of trouble and now lloyds tsb involved it will just go to pot.with the dodgy ceo's.

  • rate this

    Comment number 23.

    If the E.U. forced this through, why should British tax payers take a hit, What's wrong with the ECB taking the hit . Or did I miss something ? I am always open to education.

  • rate this

    Comment number 22.

    Who then runs the Co-ops existing IT systems and what happens to existing Co-op customers ? Will they all be moved onto Lloyds systems also?
    As we recently learned thanks to RBS IT systems can be a bit temperamental.

  • rate this

    Comment number 21.

    Reform Proposal

    That there should be a maximum size for any financial services business.

    Expressed as a combination of branches and or capital and or share of customers.

    Exceed this should prevent a merger or cause a statutory requirement to divide itself into two.

    Remember 'Standard Oil of New Jersey' 1911!

    Monopolies and cartels are very bad for everyone.

  • rate this

    Comment number 20.

    Interestingly, the people whose bank accounts are being moved aren't complaining. It is great that they are being shoved into ethical banking but it's sad that it's not something people pay attention to.

  • rate this

    Comment number 19.

    We need far more block branch transfers.

    Lloyds another 1000. Barclays 1200 HSBC 1200 RBS 1200 preferably in two blocks of about 500.

    We need 40 banks not 40 banks.

    Some of the big building societies must also be broken up. (and Santander)

    Then there is the question of the globalised banks - should their global structure be broken up?

    Then we must look at the huge insurance & pensions coys.

  • rate this

    Comment number 18.


    "...Do the staff of the 632 Lloyds branches also transfer to Co-op/TSB?..."


    I'd be surprised if some at least did not.

    Happy they should be too.

    There's no plan to close the Co-op DB pension scheme as far as I know, as was not the case at LTSB, so perhaps prospects are better in that respect.

  • rate this

    Comment number 17.

    The Co-op is owned by its customers - I thought so not quite the same as a building society. There will be mass TUPE transfer of staff that can be largely associated with the transfer of branch-business. This may include some senior management if both parties are willing. If Lloyds did not allow the Co-op to use its systems at least in the short/medium term the transfer would have to be delayed.

  • rate this

    Comment number 16.

    Same company, different name..

    What a joy to be a Lloyds shareholder for the last 5-6 years?

    and What a joy to see that the UK goverment is not manipulating markets in its interest whenever it wants to.

  • rate this

    Comment number 15.

    Labour were caught in two minds over this one .

    Do they say it was their idea in the first place or do they say its a waste of taxpayers money .

    They chose the latter.
    And their stooges at the BBC have delivered non stop criticism so far today .

    If it was so cheap why was there only one bidder .

    This is a huge good news story .
    Get over it and do YOUR job not Ed Balls.


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