After more than a year of discussions, Co-op gives up on its ambition to challenge the big four high street banks
The Co-operative Group has given up on its ambition to become a major challenger in high street banking by pulling out of talks to buy 632 branches from Lloyds Banking Group.
After more than a year of discussions, the biggest mutual in the country admitted on Wednesday that it could not proceed with a deal that would have created a 974-strong branch network – three times its current size – and a large increase in its share of current accounts to 7%.
The withdrawal of the Co-op from the deal will also be a major blow to the government which had worked hard behind the scenes to try to facilitate a transaction that could have fostered competition on a high street still dominated by the “big four” – Lloyds, Royal Bank of Scotland, HSBC and Barclays.
The branches – which Lloyds had been selling under the code-name Verde – must be sold by November under instruction from Europe because of the £20bn of taxpayer funds ploughed into Lloyds during the financial crisis.
António Horta-Osório, chief executive of Lloyds, was told on Tuesday night by outgoing Co-op boss Peter Marks that the deal was off. The bailed out bank, 39% owned by the taxpayer, will now revert to its back up plan to float the branches on the stock market through an initial public offering (IPO) under the old brand name of TSB.
In a terse statement, the Co-op said it was “not in the best interests” of its members, who effectively own the group, to continue with the talks. “This decision reflects the impact of the current economic environment, the worsened outlook for economic growth and the increasing regulatory requirements on the financial services sector in general,” the Co-op said.
Horta-Osório said he was “disappointed” with the decision. “However, we are well advanced in our plans to bring the Verde business to the UK high street during the summer through the TSB Bank, and will now proceed with the option to IPO the business, subject to the necessary approvals,” he said.
“The TSB bank will be an attractive retail and commercial bank that will have around 630 branches across the UK, a strong management team and will be a real challenger on the high street.”
The collapse of the deal suggests that two new branch networks could be floated on the stock market next year as Royal Bank of Scotland is expected to float more than 300 branches under instruction from Europe after its talks with Santander fell apart last year.
The TSB brand – phased out by Lloyds after it bought the bank in the 1990s – will be revived by September, Lloyds said, and will operate as a separate business within Lloyds until a selloff is complete. Lloyds may need to ask the EU for an extension to the sale period.
Some 4.8 million Lloyds customers were to have transferred to the Co-op and as many as 7,000 staff. “There are no direct impacts to customers as a result of today’s announcements. Customers don’t need to do anything and can carry on banking in the same way as they do now, accessing their accounts as usual via the branch, telephone and online banking,” Lloyds said.
For Peter Marks, who retires as chief executive of Co-op next month, the decision to pull out will be a major disappointment. As he presented his last set of results after 40 years last month, he had to admit that the Manchester-based group had made a £600m loss because of problems in the banking business.