Co-op to break dominance of top tier banks

 
Tim Wallace
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MILLIONS of Lloyds customers are set to become Co-op clients under the deal announced yesterday, making the smaller bank a new “challenger” to the UK’s dominant big five.

Under the deal, set to be finalised by Christmas, the Co-op will issue £350m of subordinated debt in the coming months as an initial payment for the 632 branches and 4.8m customers.

That will give the Co-op almost 10 per cent of all UK branches and seven per cent of current accounts, as well as additional savings accounts and an increased mortgage book.

Depending on the bank’s performance over the next 15 years it will also make additional payments of up to £400m, giving Lloyds a total of £750m.

The transfer must be complete by November 2013 under European Commission rules, by which point the Verde business is expected to have a balance sheet totalling £24bn.

Customers will be switched depending on which branch they are associated with, and will be informed of the change when the deal is finalised – probably by the end of this year.

Lloyds boss Antonio Horta-Osorio welcomed the deal.

“We believe the Co-operative will be a good owner for our business, customers and colleagues, and the combined banking business will be a significant competitor on the high street with nearly 10 per cent of today’s UK branch network,” he said.

But not all analysts were so keen – ratings agency Fitch downgraded the Co-op bank from A minus to triple-B plus on a negative ratings watch.

“Fitch continues to believe that there are execution and integration risks associated with the transaction, particularly relating to asset quality development and the burden on management,” Fitch warned.

“Other risks include migration of existing customers,” it said.

ADVISERS PROJECT VERDE

BARCLAYS CAPITAL
CREDIT SUISSE
JP MORGAN CAZ
CITIGROUP

CO-OP has clinched the purchase of the Project Verde assets with the help of advisers Credit Suisse and Barclays Capital.

Leading the team for BarCap is Ben Davey, head of the EMEA financial institutions group in the investment banking division.

Davey, who moved to the bank from Rothschild in 2010, heads a team with a pedigree in buying and selling part-nationalised assets.

It acted as adviser to Sumitomo Mitsui Financial Group during its £4.7bn purchase of RBS Aviation Capital in January, and worked with the Central Bank of Ireland and the Irish Ministry of Finance while they were restructuring the country’s banking system.

Davey was also involved with Lehman Brothers Asia’s sale to Nomura, and worked with Alliance & Leicester on its 2008 acquisition by Santander. He is also a trained barrister.

Meanwhile Citigroup and JP Morgan Cazenove helped Lloyds negotiate the path to a sale of its 632 branches.

Lloyds hired the banks in March 2011 to oversee the sale, following the European ruling in 2009 that forced the part-nationalised lender to part with the branches.