Sinking bank values mean it could be game on for Co-op

THE Co-op is back in the game. Its groundbreaking bid for 632 Lloyds branches looked like it was on the brink of being knocked out when, in April, the mutual lost its hold on exclusive talks.

Now, however, it is competing again after some canny negotiating with Lloyds, 41 per cent taxpayer owned, and because of the dire market for trade sales.

Last week it emerged that Royal Bank of Scotland may receive up to £300m less than expected for the 318 branches it is selling to Santander UK after apparently missing a series of performance targets. It is this, along with the two-year delay since RBS struck a deal with the Spanish lender, that has dampened Lloyds’ prospects of achieving a deal worth up to £2bn for the Verde branches.

Meanwhile, the doubts surrounding the Co-op’s bid have begun to fade, as it works on plans to appease the FSA by beefing up its governance and board, which is led by chairman Paul Flowers, a Methodist minister and ex-Bradford city councillor.

The sale could create Britain’s seventh-biggest bank, with a 4.6 per cent share of current accounts.

The Co-op’s directors have remained cautious, aware that a deal could still fall apart, but they know they have no direct rivals – Lloyds is simply “sharing information” with Lord Levene’s NBNK vehicle and initial meetings have not dislodged the mutual’s status as preferred bidder.

The Co-op also appears to have support from Liberal Democrat ministers, who have talked up the role of mutuals in financial services.

For now, at least, the Co-op is on course to be the winner.