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Category : Business

Lloyds Banking Group to press ahead with a sale of 632 branches to the Co-operative Bank after it rejected a rival offer from NBNK

Lloyds Banking Group agreed on Wednesday to press ahead with a sale of 632 branches to the Co-operative Bank after it rejected a rival offer from the private equity start-up NBNK.

Lloyds said agreement over the terms of a deal had put the bank in a position to choose the Co-op over NBNK and move towards a sale of the branches on an exclusive basis.

The deal is already three months behind schedule and has come under fire from critics who want the government, which owns 43% of Lloyds, to create a more diverse banking sector.

Lloyds was initially forced to sell the branches to satisfy European state aid laws.

The Co-op will grab a 7% share of the current account market should the sale of the Verde group of branches go through, boosting its standing on the high street and propelling it into the major league of UK retail banks.

Lloyds said in a statement after the stock market closed: “Lloyds Banking Group has made considerable progress with the Co-operative Group on the Verde transaction.

“The Group and Co-op now have an understanding on the commercial terms for the transaction. This is subject to agreeing satisfactory documentation, the approval of their respective boards, and further discussions with the FSA, HM Treasury and the European Commission.

“During this final phase of the discussions, and in order to proceed to ‘Heads of Agreement’, negotiations with the Co-op will proceed on an exclusive basis.”

The chief financial regulator, the FSA, and the Treasury are understood to be concerned that the branches are accompanied by a significant amount of financial reserves to stay within regulatoiry rules.

Lloyds said the Verde business would have equity capital of £1.5bn to protect customers in the event of a run on the bank.

The move is a blow to NBNK, which is fronted by former Lloyd’s of London chairman Lord Levene, and run by former Northern Rock chief executive Gary Hoffman.

Only hours before it was rebuffed the fledgling start-up made a renewed bid for the branches which it hoped would steal a march on the Co-op.

The latest results for NBNK show it lost £23m in its last financial year after it failed to trump Sir Richard Branson’s Virgin Group in the bidding war to take Northern Rock private.

A lack of bid targets meant the company planned to return its remaining cash to shareholders, though this amounted to only 40%.

Hoffman, said: “We are disappointed that the door has now been closed on this opportunity, with the result that we will be unable to deliver our vision of banking, bringing a vibrant new challenger to the high street, devoted to providing the level of service that customers want and deserve.”

“We would have provided more local decision making, flexible opening hours, new modern systems and a guarantee of no short term bonuses – everything we believe that people want.”

The Unite union, which represents staff at Lloyds, said it was seeking assurances from the bank that jobs would be protected.

It said: “Months of speculation and negotiations have left the Lloyds banking workforce feeling vulnerable.

“The decision by the European Commission to force Lloyds Banking Group to divest a significant number of its branches as a condition of receiving state aid, places under threat 9,000 employees.

The Co-op has yet to make any assurances concerning the branches, which include the Cheltenham & Gloucester network, Lloyds TSB branches in Scotland and several call centres and operations offices in Sunderland, Swansea and Livingston.

The Co-op said in a statement that discussions have made “good progress” , but was unable to say when an agreement would be signed.

It added: “There can be no certainty that a transaction will be completed. Further announcements will be made as appropriate.”

Lloyds share price had risen 2.4% earlier in the day along with other listed banking shares.

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