Co-op board meeting to mull legal overhaul for Lloyds bid

THE MANAGEMENT of Co-operative Financial Services (CFS) will discuss the pros and cons of overhauling the group’s legal structure in order to continue with its attempt to buy 632 Lloyds branches this week.

Among the concerns expressed by the FSA over the Co-op’s bid is a question as to whether the group’s legal structure is robust enough to segregate its bank capital from its other businesses.

Demonstrating its robustness could involve moving to a full subsidiary model of the kind used by HSBC, which capitalises all of its businesses separately.

Alternatively, the Co-op could fulfill the capital requirement at group level, but that would require it to hold billions more in reserve against its non-banking businesses.

The board of CFS is under pressure to make a decision soon on whether it can meet the regulator’s demands, because Lloyds believes that if it cannot sign a contract by June, the sale will not be able to meet an end-of-2013 deadline for completion.

Adding to the urgency is a rival bidder waiting on the sidelines for the Co-op’s deal to collapse. NBNK Investments, the buy-out vehicle put together by Lord Levene and defeated in the bidding December, submitted a revised offer for the branches last week.

But for the time being, Lloyds is still in exclusive talks with the Co-op. The Co-op declined to comment.