PETER Marks, group chief executive of the Co-operative Group, said in March that there were “very material regulatory issues” holding back its purchase of branches from Lloyds Banking Group. Yesterday’s non-binding announcement of terms for the deal suggests both sides are confident the FSA won’t now stand in their way.
But have the issues really been resolved? Bringing in Paul Pester, currently head of the Verde branches for Lloyds, to run the combined banking business solves the lack of a chief executive at the Co-operative Banking Group. However, given Neville Richardson stood down last summer just two weeks after the group made its bid for Verde, prompting speculation he thought it was a bad idea, that’s not too reassuring.
There are also wider questions about the mutual’s level of experience given the huge growth spurt the acquisition represents – from 300-odd branches to nearer 1,000 and more than doubling its market share to around seven per cent of UK personal current accounts. The flipside of creating more competition is expecting a smaller player to punch above its weight almost overnight.
After the recent RBS fiasco, it’s good to see that fears about the Co-op’s ability to merge IT systems successfully, following a sluggish process with Britannia, have been addressed by a commitment to use the Lloyds Banking Group platform under licence.
But last night’s downgrade of the bank by Fitch, and its warning that a further downgrade is likely if the Verde deal does go through, was far from a vote of confidence in the financials. Some see the Co-op’s core tier I capital as relatively low at 9.6 per cent, while its 2011 profits were flat in banking and fell sharply across the whole group. The Co-operative Bank has high customer ratings for some current accounts and its online bank Smile. But that doesn’t make this huge deal good for consumers. There are plenty of question marks, and every sign of a rush-job to meet the November 2013 divestment deadline.
Marc Sidwell is City A.M.’s managing editor