A Treasury source said that the bank could be asked to sign a deal with an existing “challenger bank” that has enough branches to rival the industry’s incumbents, who are forbidden from buying the branches.
Narrowing the field of buyers to a bank that would threaten the status quo could go some way to satisfying the Independent Commission on Banking (ICB), which has said that Lloyds must sell “substantially” more branches than currently planned.
But it could make it difficult for potential bidders like Spain’s BBVA, Virgin Money and NBNK Investments to buy the branches alone because they might face rivals that already have a high-street presence, such as National Australia Bank or a number of building societies.
Although the Treasury says it is “reasonable” for Lloyds to proceed with the the sale of 620 branches as planned, it has not ruled out stepping in at a later stage to make it sell more.
Lloyds is already obligated to make sure that the branches, which it has to sell under EU competition law, come “ready to use”, with a management and IT system in place.
The bank is currently finalising the details of an information memorandum that will kick off the sale process when it is sent to potential bidders in the next couple of weeks.
Prospective buyers have told City A.M. that once the memorandum is received, it could become difficult and costly to change the terms of the deal.