Lloyds' branch sale to Co-op falls through

 

Co-operative Group chief executive Peter Marks: "There will be other opportunities to expand our bank in the future"

The planned sale of 631 UK bank branches by Lloyds Banking Group to the Co-op group has fallen through.

The Co-op blamed the continued economic downturn and tougher regulatory environment imposed on banks.

Lloyds said it will now seek to sell the branches as a stand-alone bank through a stock market listing.

It had been hoped that the Co-op's purchase of the branches would create a bigger competitor to the main high street banks.

"I think it is very disappointing. I was really hoping this would happen," Business Secretary Vince Cable said in an interview with the BBC in Brazil.

"We do need more competition and we need more diversity in business lending, and having the Co-op, a mutual, a new player in the small business lending, would have been a big step forward."

Lloyds' chief executive Antonio Horta-Osorio agreed.

"We are disappointed that the Co-operative Group is unable to complete this transaction," he said.

The sales of the branches, known as Project Verde, was demanded by European regulators as the price for being bailed out by the UK government during the financial crisis.

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For the Co-op and the banking market, the ramifications are much more serious.”

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The Lloyds statement said: "The Co-operative Group's board has decided that they can no longer proceed with a purchase of the Verde business given their view of the impact of the current economic environment, the worsened outlook for economic growth and the increasing regulatory requirements on the financial services sector in general."

During the summer the branches will be branded as TSB Bank, and the group will operate as a separate business within Lloyds ahead of a sale.

The Co-op's 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.

"Against the backdrop of the current economic environment, the worsened outlook for economic growth and the increasing regulatory requirements on the financial services sector in general, the Verde transaction would not currently deliver a suitable return for our members within a reasonable timeframe and with an acceptable level of risk."

The BBC's business editor, Robert Peston, said the Co-op's decision was a blow for the Treasury, which has been backing attempts to create powerful competitors to the UK's big high street banks. He said that the Co-op will now review the future of its banking business.

Labour's shadow financial secretary to the Treasury, Chris Leslie, said "his should serve as yet another warning to George Osborne that his economic plan is failing and he must urgently act to kick-start our flatlining economy".

But Mr Cable said "the Co-op were struggling to raise the necessary capital because the regulatory requirements at the moment are quite demanding for capital for new banks, and I think they just weren't able to achieve that in a way that was commercially acceptable to them"

"But the government can't intervene in the process - it was ultimately a commercial decision for them."

Challenger banks

Lloyds, which is 39%-owned by the government, had a deadline of November 2013 to complete the sale in order to meet European Commission competition rules. But there have been reports over the past few months that the Co-op was going cool on the acquisition.

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Millions of Lloyds customers face an element of uncertainty after a proposed deal to sell 631 branches to the Co-op collapsed”

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A flotation is unlikely to be possible until the second half of 2014, which would mean the UK government and Lloyds asking Brussels to extend its late 2013 deadline for the sale.

"I am hoping that the sell-off, which has to happen under European Union rules, will now proceed with another buyer," Mr Cable said.

The Co-op agreed in 2012 to buy the branches.

This involved the potential transfer of 4.6 million customers, including 3.5 million in England and Wales and the remainder in Scotland.

Customers in England and Wales had already received letters telling them of the move and giving them the option to stay with Lloyds. This information is still relevant, as customers of the branches being sold will still become customers of the new TSB Bank.

The aborted takeover would have created Britain's seventh-biggest bank with about 5% of personal current accounts and mortgage market and about 10% of the branch network.

A Treasury spokesman described the Co-op's move as "a commercial matter." However, he stressed that government remained committed to encouraging so-called "Challenger" banks to increase competition on the high street.

 

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  • rate this
    0

    Comment number 223.

    UKFI was set up by and is 100% owned by the Government to hold stakes in banks and other financial institutions where taxpayers money was used to acquire the stakes.

    The Government, through UKFI, has never had a controlling interest (more than 50% of the issued share capital) in Lloyds bank. Thus, Lloyds can do as it pleases, subject to the regulators, shareholders and the EU.

  • rate this
    +1

    Comment number 222.

    @220 - might want to check your facts. Lloyds wouldn't have failed had it not 'rescued' HBOS.

    One bank would have failed and another would have thrived. 2 banks became 1 and needed bailing out because of 'skeletons in the closet' of the other.

    Nice to see most people have found the 'bank beating sticks'

  • Comment number 221.

    This comment was removed because the moderators found it broke the house rules. Explain.

  • rate this
    -1

    Comment number 220.

    Kudos to the coop for making a rational financial decision, if it was my company I wouldn't want anything to do with the ticking time bomb that is Lloyds, their reputation is in tatters. They should have been allowed to fail in the first place but instead tax payers capital has been used to ensure the fat cat bankers keep getting their precious dividends.

  • rate this
    -1

    Comment number 219.

    @194. rememberdurruti

    Could have used the £1.3 trillion for funding engineers, scientists and business instead of middlemen who purchase toxic debt in the hope of making a quick buck!

    Could have done a lot of things if we'd had properly regulated and run banks. Former FSA chair Adair Turner hasn't offered to hand back his life peerage as I understand it.

  • rate this
    +3

    Comment number 218.

    186.rememberdurruti
    So you would have allowed the banks to go bankrupt allowing the likes of KPMG to milk the creditors in fees and then had the UK government provide an even BIGGER bailout of the businesses/average joe/councils who lost out when the banks went down with little chance of ever the money back. No particularly good logic that, lose billions more by not bailing out the banks.

  • rate this
    0

    Comment number 217.

    Although they talk about selling Branches they are in effect selling the customers, their deposits and liabilities. A friend who has banked with Lloyds all his adult life was appalled at the prospect of being sold to the Co-Op which rightly or wrongly he considered to be "not a proper bank". He promptly moved to Barclays. Interesting that the "excessive regulation" also figured in the decision.

  • rate this
    0

    Comment number 216.

    @207.roger48
    "The Government (not the same thing as taxpayers) own a 40% stake."

    I'm confused. UK Financial Investments (UKFI) which actually owns the 40% stake is listed on Companies House as a private limited company. So I'm not convinced the government per se has any real controlling stake at all, even though UKFI was (I think?) set up by the government in the first place.

  • rate this
    +1

    Comment number 215.

    I have a coop and natwest.
    I would love if the postoffice could deal with ANY bank, we can then support the Postoffice branches , I only have a coop account because of the ethics' and have to drive to the NatWest, because like many other small businesses blocked from any other one due to 'poor credit score', so end up 'stuck' where you are!

  • rate this
    -3

    Comment number 214.

    There are far too many bank branches in the UK. What on earth do the staff find to do all day?
    About time the banks reduced their headcount massively.

  • rate this
    -3

    Comment number 213.

    You would not want to do business in the corrupt UK anyway.

  • rate this
    0

    Comment number 212.

    Co-op had its credit rating reduced, maybe as a result of it taking over Britannia and the Lloyds branch acquisition is a step too far. Several Co-op societies have had to close department stores which they could not run profitably, whilst the food stores are the one saviour, so perhaps it should simply keep to doing what it knows best and where it has proven success to rebuild its credit rating.

  • rate this
    -1

    Comment number 211.

    Tell the EU to push off & wait for improved market before selling.

    It is ridiculous & outrageous that the EU is forcing UK to offload a heavily taxpayer funded bank at the bottom of the market.

    It stinks & will ultimately result in some investors buying it at a later date much much cheaper, & costly to UK taxpayers & UK government will say " we were forced", rubbish.

  • rate this
    +1

    Comment number 210.

    This is a pity: but then given the additional demands for capital protection which added a further billion to what the Coop has had to raise this was clearly becoming too big a risk.

    The Coop by and large is good bank but the logistical jump in the current market is just not worth the aggravation.

  • rate this
    +2

    Comment number 209.

    Maybe the easy thing to do is 'unpick' the whole Lloyds/HBOS merger and get things back to how they were. The government can then let 1 bank fail and the other prosper and everyone will be happy? Or maybe the bank should continue to trade to the rules set without the need for EU interference? Maybe then the bank can pay back the money owed to tax payers?

  • rate this
    +1

    Comment number 208.

    I can't imagine investors having much appetite for this IPO idea. The only way to sell it will be to significantly under value the shares which in turn is bad news for UK taxpayers.

  • rate this
    +3

    Comment number 207.

    203 & 145.

    The taxpayers do NOT own Lloyds Bank. The Government (not the same thing as taxpayers) own a 40% stake. That is not a controlling interest and Lloyds, within the bounds of what shareholders generally allow, can do as it pleases. Nothing to do with taxpayers.

  • rate this
    +3

    Comment number 206.

    Sounds to me as if the CoOp has realised it's pretty crap at running its current banking business (I know, I'm a customer) and doesn't want to dig a hole it can't get out of.
    TSB Bank customers have been spared archaic ideas and practices, shoddy customer service and a small and unhelpful branch network.

  • rate this
    -1

    Comment number 205.

    We do not need more banks, too many may well be the problem making branches worthwhile to have. Such that they have to be extreme in their tactics, cheating customers as policy to survive. What we all really need, and the country, is high interest rates, and a huge property crash. Until that happens we will not get to a new stable normality.

  • rate this
    +1

    Comment number 204.

    Buying into the banking sector is like buying a ticket for Titanic II.

    Why would you do it, unless the price asked drops like a politicians popularity.

    Put it on Ebay, that way you'll find out what the REAL market is willing to offer, as long as it comes with freepost I will bid a £1, maybe even extend & double my risk factor to £2

 

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