Co-operative Group drops deal for Lloyds branches

The Co-operative Group has withdrawn from the deal to acquire 632 Lloyds Banking Group branches and the associated 4.8 million customers.

The Co-operative Group has withdrawn from the deal to acquire 632 Lloyds Banking Group branches and the associated 4.8 million customers.

According to the Group's Chief Executive, Peter Marks, the decision to back out is due to the economic downturn and increasing regulatory requirements. He 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. Having worked closely and constructively with Lloyds we are naturally disappointed to have reached this conclusion. 

"However, 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."

A successful deal would have tripled the Co-operative Bank’s branch network, with the Group becoming a major competitor to the big four UK banks. 

The state-rescued Lloyds bank was being forced to sell the branches under European Union competition rules before the end of November. The cost for the Group was due to be £350m upfront and an additional £400m based on performance targets before 2027, which would have taken its market share from one to seven per cent, with a total of 11 million customers.

The decision to drop the deal with Lloyds came three months after the Bank’s finance chief, James Mack, had quit. Press speculation at the time said the deal was under pressure due to the departure of Mr Mack.

Mr Marks added: "The Verde transaction offered a significant opportunity to The Co-operative and the sector as a whole as it would have created a major challenger bank. It was right therefore, for us to explore it in the detailed way we have. We were, however, clear from the outset that Verde was a complex transaction and that this was not the only option open to us to develop our Bank. 

"We remain committed to driving the Co-operative Group forwards under our clear strategy and, as part of that, we will continue to develop our Bank for the long-term, offering a real alternative on the high street with our strong, established brand and our reputation as a trusted financial services business." 

In the last financial year, the banking arm of the Co-operative Group accounted for a £600m loss in 2012, in a year which was described by Mr Marks as a challenging one. The Bank spent £150m to cover claims for mis-sold payment protection insurance. Losses in the banking arm of the Group were also caused by a £150m writedown of IT systems and £377m of bad loan losses.

Last month it was also announced the Group was to sell-off its insurance business in two parts, which would raise capital to allow the organisation to focus on its "relationship banking activities"  and "strengthen" its capital position.

António Horta-Osório, Chief Executive of Lloyds Banking Group said: “We are disappointed that the Co-operative Group is unable to complete this transaction. However, we are well advanced in our plans to bring the Verde business to the UK High Street during the summer through the TSB Bank, and will now proceed with the option to IPO the business, subject to the necessary approvals. The TSB Bank will be an attractive retail and commercial bank that will have around 630 branches across the UK, a strong management team and will be a real challenger on the high street.”

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