The Co-op reaches deal to buy Lloyds branches
The Co-op had an exclusivity deal with Lloyds to reach an agreement
By CFOWorld staff | CFO UK | Published 13:04, 19 July 12
The Co-operative group is to buy 632 branches from Lloyds Banking group in an effort by regulators to catapult the Co-op into the big league and open up the market to increased competition.
The deal will also prevent Lloyds from benefiting unfairly from its taxpayer-bailout four years ago.
Mutually-owned Co-op said the deal would boost the share of its branch network to 10 percent from less than 4 percent, creating a new force in retail banking capable of taking on the dominant lenders.
"People have lost trust in the financial services sector. Now we can provide a big bank, a challenger bank, that people can really trust," Co-op group chief executive Peter Marks told reporters on a conference call.
Lloyds, ordered by regulators to offload the branches as payback for its state-funded rescue, said it would make a loss on the sale but that this would be counterbalanced by lower capital requirements. There will be no lasting impact on group profit.
"We believe the cooperative will be a good owner for our business, customers and colleagues, and the combined banking business will be a significant competitor on the high street," Lloyds CEO Antonio Horta-Osorio said.
Lloyds, which had been expected to raise as much as £1.5 billion from the sale, will receive just £350 million upfront.
It also stands to collect further payments spread out until 2027 with a present value of £400 million, depending on how the newly-created business performs.
The Co-op's Marks said the Financial Services Authority was "very pleased" the new bank would use Lloyds' proven IT platforms, reducing the risk of computer glitches of the kind that disrupted payments at Royal Bank of Scotland's NatWest unit last month.
But he denied press reports that the FSA had raised concerns that the Co-op's board lacked banking experience.
"Never once in all of my meetings with the FSA, and there have been plenty, have the FSA raised any questions about our banking board or our group board," he said.
The new bank will be led by Lloyds executive Paul Pester, who was appointed in May 2011 to run the branches earmarked for sale in case Lloyds opted to list them separately instead.
Lloyd's shares were flat by 09:15 a.m. British time, in line with the FTSE 100 share index.
photo credit: Reuters
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