THE CO-OPERATIVE yesterday offloaded its life insurance and asset management arms in a move that could save its bid to buy hundreds of branches from Lloyds Banking Group.
Royal London, a fellow mutual society, paid £219m to take control of the units following almost two years of discussions.
The Co-op wants to transform itself into a major player in retail banking and last July agreed to buy 632 high street stores from Lloyds for £350m.
However, recent reports have suggested it is struggled to meet the necessary capital requirements set down by the Financial Services Authority – which could be as high as £1bn – to receive approval for the deal and become a fully-fledged challenger bank.
The Manchester-based conglomerate said yesterday’s decision to offload the operations, which have 2m customers and funds under management of around £20bn, would result in a “significant release of capital”, boosting hopes that the Lloyds deal could be revived.
It is also thought to be considering other disposals, including its non-life insurance business, in an attempt to bolster its position and purchase the branches.
Yesterday’s sale will contribute an immediate £39m to the group’s balance sheet, with a further £180m deferred until certain technical requirements are met.
The deal is subject to regulatory approval and will have to pass a vote of Royal London members later this year.
Phil Loney, Royal London chief executive, said: “The increased scale of our asset management operations and introduction of over two million new customers will enable us to develop further efficiencies to support our profitability in the coming years and contribute towards future bonuses and further mutual dividends for our members.”
The deal will take total funds under management at Royal London from £50bn to £70bn and join up large two ethical funds in the form of Royal London Asset Management and Co-operative Asset Management.
Barry Tootell, chief executive of The Co-operative Banking Group, insisted existing policyholders would feel at home within another mutual business that has “the necessary scale and focus on the long-term savings sector” .
“As member-owned organisations, we have much in common with Royal London,” he added.