This is a serious spanner in the works for Lloyds. Until Wednesday, the bank thought that it was going to offload 632 of its high street branches to the Co-op (which was trying to expand its banking arm), but now it has turned around with a ‘no’, blaming tough market conditions and an overly restrictive regulatory environment.
The collapsed deal, nicknamed Project Verde deal, has been work in progress for many moons, and leaves Lloyds in a bit of a pickle. The bank needed to offload the branches to comply with EU regulation relating to the amount of support that governments can offer financial institutions in a bailout. Back in 2008 when it hit the buffers, the government had to exceed that amount to keep it afloat, and when the Co-op expressed an interest in the branches, it was a convenient opportunity.
Co-op boss Peter Marks said: ‘After detailed and thorough consideration of all aspects of the Verde transaction, we have decided, at this time, that it is not in the best interests of our members to proceed with the transaction.
‘Against the backdrop of the current economic environment, the worsened outlook for economic growth and the increasing regulatory requirements on the financial services sector in general, the Verde transaction would not currently deliver a suitable return for our members within a reasonable timeframe and with an acceptable level of risk.’
The folks at Lloyds are obviously miffed about it – one of the main lines in the statement from the bank’s CEO, Antonio Horta-Osorio, was a brusque-sounding: ‘We are disappointed that the Co-operative Group is unable to complete this transaction.’ No doubt he’s disappointed: the deal was on the verge of netting the bank £750m.
So what will Lloyds do next? Well the latest reports suggest that it will have an IPO for the branches, selling them off as a new independent bank by listing them as a new brand on the stock market. The difficulty is that Brussels decrees mean that it only has until the end of the year to get rid of the assets, and many in the City are sceptical that this provides enough time to complete such a move.
Overall, the collapse of the deal is a blow for more than just Lloyds and Co-op. There were hopes that the new branches would end up constituting a sixth major bank in the UK financial sector, adding competition and improving consumer choice. We may still get this with the IPO, but you can bet it will take another couple of years for all the appropriate paperwork to be shuffled…