Co-op and Lloyds agree terms for bank branches
THE Co-operative Group has agreed terms for the Project Verde assets being sold off by Lloyds Banking Group, which includes 632 high st bank branches.
Co-op chief executive Peter Marks said the deal will “deliver the biggest shake-up in high street banking in a generation”, creating a bank with a network of more than 1,000 branches and 4.8m customers which could prove to be a real challenger to the four main clearing banks.
“We believe this would be a great deal for customers, for the public, for UK banking generally and for The Co-operative Group, in particular,” he added.
The Manchester-based organisation is paying a nominal £800m for the assets, which have a balance sheet of around £24bn. It will pay an initial £350m to Lloyds Banking Group, with a further £400m due over the next 25 years subject to certain criteria being met. The Co-op will issue subordinated debt of £350m to fund the initial payment, underwritten by Lloyds.
Lloyds Banking Group, which is selling the branches to meet EU state aid rules following the bail-out of the Bank of Scotland business it acquired in 2008, is also providing £1.5bn of equity capital to help underpin the new organisation’s funding structure.
The deal is still subject to due diligence being completed as well as approval from both boards, the FSA, Treasury and the European Commission.
The combined organisation will have a market share of around 7% of all the personal accounts held in the UK. The branches being transferred from the group will use the TSB brand from next year. It will also continue to run as a separate entity until eventually being integrated into existing Co-op bank systems from 2015.
Mr Marks added: “So far as UK banking generally is concerned, this would be a great deal because it would help restore trust in a sector whose image has been badly tarnished over recent years.
“Despite the crisis in the financial sector, our bank has continued to go from strength to strength, coming through the financial crisis in great shape and maintaining our ethical and socially responsible credentials. Whilst we are not at the end of the road yet, we are pleased to have reached this important milestone and look forward to continuing to work with Lloyds Banking Group to reach a final agreement.”
Gary Greenwood, an analyst with Shore Capital Partners, said: “The shape and size of the business being transferred is different to that originally envisaged, being both smaller (only £24bn of assets versus £64bn originally) and match-funded (the original disposal group had a £32bn funding gap) … a necessity in our view, if the Co-op was ever going to be able to reach an agreement.”
