Co-Op walks off with a bargain

 
Tim Wallace
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THE KNOCK-DOWN sale of 632 Lloyds branches to the Co-op yesterday was met with disbelief by industry insiders, who accused the government of getting a bad deal on the sale.

The state-backed bank has agreed to sell the branches for £350m up front, followed by up to another £400m over the next 15 years – compared with the £1.5bn valuation initially suggested

But City A.M. has learned that rival bidder NBNK offered £800m up front, as well as higher future payments over a smaller time-scale, raising questions as to whether the taxpayer has lost out on the deal.

“This is a dog-shit deal for Lloyds and the taxpayer,” said a senior banking source with knowledge of the often-protracted negotiations. “Lloyds shareholders, including UKFI, should be incandescent.”

Another banker told City A.M. the decision to seal a deal with the Co-op may have been influenced by its non-listed status.

“Given that the Co-op’s shares aren’t traded, nobody is going to be able to say in a couple of years’ time: ‘Look those shares have risen massively. That’s because we undersold the Lloyds branches’,” he explained.

But the Treasury insisted the decision was purely a commercial one, with a Lloyds source arguing that the Co-op was the only viable bidder, due to its sizeable existing base and experience of running a bank.

Furthermore, it is thought that Lloyds was worried NBNK would not be able to raise the required funds, and so was more likely to fail to complete the deal than the Co-op.

In any case, chancellor George Osborne stressed that value for money on the deal is not the only factor to be taken into account as the deal boosts competition in the sector by creating a sixth major player.

“This is another step towards creating a new banking system for Britain that gives real choice to customers and supports the economy,” he said.

“The sale of hundreds of Lloyds branches to the Co-operative creates a new challenger bank and promotes mutuals. This follows the sale of Northern Rock to Virgin Money in January and represents another important step towards a more competitive banking sector.”

Around 4.8m customers will be forcibly transferred alongside their branches by November 2013, boosting the Co-op’s current account market share to roughly seven per cent.

Lloyds was forced to sell the branches under a European Commission competition ruling. The branches will be rebranded to TSB next summer.

Lloyds shares rose 1.54 per cent to 30.24p yesterday.