Lloyds Banking Group has agreed the sale of 632 branches to the Co-Operative Group, concluding a process aimed at boosting competition in British high-street banking and streamlining its business at the behest of regulators.
Lloyds - which is 40 per cent owned by the government - said the Co-Op would pay £350m for the branches and up to £400m in additional payments in a deal creating another major British bank.
The deal will bring 4.8m new customers to Co-Op's burgeoning brand, including 3.1 million current account holders, and means the Co-Op will run around 1,000 branches, or approximately 10 percent of the UK network.
"People have lost trust in the financial services sector. Now we can provide a big bank, a challenger bank, that people can really trust." Co-op Group CEO Peter Marks told a conference call.
The additional payments will be based on the performance of the combined Co-Op business from completion until 2027.
"Today's agreement is an important step in meeting our obligations under the mandated sale of our branches. We believe the Co-operative will be a good owner for our business, customers and colleagues," Lloyds CEO Antonio Horta-Osorio said in a statement.
"In addition to an upfront consideration, we will also get to share in the future financial performance of the combined banking business which will be an effective challenger with a strong customer focus," he added.
The portfolio of branches had been expected to fetch as much as £1.5bn for Lloyds but the bank said that its loss on disposal would be broadly offset by lower capital requirements and would not have a material impact on the future profitability of the group.
News of the deal was welcomed by the UK government which has championed a shake-up in UK banking and the promotion of mutually-owned financial businesses.
Chancellor of the Exchequer George Osborne said: "This is another step towards creating a new banking system for Britain that gives real choice to customers and supports the economy."