Regulators didn't think Co-op had enough capital for Verde branches over a year before bid failed

At a meeting of the Treasury Select Committee (TSC), it became apparent that the Financial Services Authority (FSA) (the part of which that now forms the Prudential Regulation Authority (PRA)) had worries about the Co-operative bank bid for Lloyds branches over a year ago.

The revelations are likely to renew questions about why the Co-operative bid was supposedly so favoured despite regulator concerns. The eventual collapse of the bid has not just been bad news for Lloyds, but also for the the Co-op and other potential bidders.

Andrew Bailey said to the the TSC that he had told the Co-op to make Lloyds aware of their concerns at the tail-end of 2011.

We never approved the Co-op bid for the Verde branches.

Going back to the outset of that whole process, which was about two years ago when it was first an idea, I said to the board of the coop bank, that in my view, and I have to say it was a view without having done the stress test which was subsequently done, they needed to raise capital.

Towards the end of 2011, we made it clear to them, and I'll use these words carefully, it was not clear to us that the Co-op banking group had the ability to transform itself successfully and sustainably into an organisation on a scale that would result from acquiring the Verde assets.

Earlier this month, The Telegraph revealed that the chairman of the failed NBNK bid for the bank branches - Lord Levene - wrote to chancellor George Osborne, alleging that there was political pressure.

Lord Forsyth, a member of the NBNK board, also spoke publicly:

The senior Conservative said that he had been “certainly told” there was political pressure applied during the process of the deal.

The Treasury has denied any pressure was brought to bear and said that the deal was a purely commercial decision between the Co-op and Lloyds. It said it was kept informed but played no part in the negotiations.