Co-op bids on smaller Lloyds asset package than NBNK

THE CO-OPERATIVE Group insisted on a drastically slimmed down package of assets when it put in its second-round bid for 632 Lloyds branches yesterday.

City A.M. understands that the Co-op has demanded that Lloyds narrow the funding gap between the loans and deposits of the package by significantly more than its rival bidder NBNK had.

NBNK offered to buy some £45bn of assets on £35bn of deposits, leaving a £10bn gap, but the Co-op has insisted on a funding gap of no more than £5bn with mortgages making up most of the assets left out. NBNK has also bid on Northern Rock, which has a large deposits surplus, and could revise its offer to include fewer assets.

Selling to the Co-op could be easier for Lloyds because as an established bank it will not need extra regulatory capital put into the branches.

But the bid has conditions attached such as a requirement that the branches do not see a large-scale flight of deposits during the two-year period over which the deal would complete.

It is understood that Hugh Osmond’s Sun Capital has made little progress in disputing the branches’ IT costs and is unlikely to bid.

Once Lloyds has two final offers on the table, it could move very quickly to exclusivity with one of the parties.

In less good news for the bank, Moody’s placed Lloyds on review for a downgrade due to the shock departure of its CEO last week.

The Co-op declined to comment.