At least two of the three bidders – the Co-operative Financial Services, NBNK and Sun Capital – are concerned that the state of the economy will make Lloyds’ forecasts about the assets’ funding gap untenable, potentially driving their sale price below £2bn.
The 632 branches on the block have some £30bn more in loans than in deposits, a gap that Lloyds has predicted will narrow to around £10bn by the time the deal closes in 2013.
Key to the bank’s argument is the idea that a steady recovery will let consumers pay back their mortgages, shrinking the loan book organically.
JP Morgan and Citi, Lloyds’ advisers on the deal, have offered a bridge loan to any buyer to cover the rest of the gap, but that loan is conditional on Lloyds’ forecasts panning out.
Bidders are now stress-testing the numbers in light of a worse macro situation since the bank kicked off the sale. If the loan falls through, finding alternative funding could prove costly.
The bank has also offered to boost the assets’ deposit base by £5bn, but faces questions over how it will grab market share without eroding margins on the business.
It will also be charged to provide evidence that the customer deposits are “sticky”, and will not simply disappear once the branches move out from under the Lloyds brand. Alternatively, it could cut down the mortgage book.