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Lloyds to float branches after Co-op deal collapses
The planned sale of 630 Lloyds bank branches to The Co-operative Group has collapsed, leaving the state-backed bank to float the business.
The Co-op has pulled its plan to buy 630 branches from Lloyds Banking Group, leaving the state-backed bank to float the business on the stock market.
Co-op group chief executive Peter Marks blamed the uncertain economic environment and increasing regulatory requirements for the collapse of the deal.
He added the transaction would not have delivered a suitable return for its members within a reasonable timeframe and with an acceptable level of risk
The deal had been under threat for some time due to the City regulator's concerns about the Co-op's financial strength. The mutual recently agreed to sell its life insurance business to Royal London for £200 million and is looking to sell its general insurance arm, for which it is reportedly in talks with Aviva. However, a spokesman said the decisions to dispose of these businesses had been strategic and were not driven by a need to bolster its balance sheet.
Under European Union rules Lloyds has to offload the branches, known as the Verde network, by the end of the year as the price of its bailout by UK taxpayers in 2009. The bank said it would now divest the Verde network through an initial public offering (IPO) instead. The branches will be rebranded as TSB Bank this summer.
António Horta-Osório, Lloyds chief executive, said: ‘We are disappointed that The Co-operative Group is unable to complete this transaction. 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.’
Lloyds (LLOY.L) shares rose 1.4% to 51.8p. They have risen 8.5% this year but are down from a recent peak of 57p in February. They reached an all-time high of 590p back in early 2007, before the banking crisis.
Gary Greenwood, banking analyst at Shore Capital hailed Co-op's withdrawal as good news for Lloyds shareholders as the terms of the £750 million deal had been 'fairly onerous' to the bank. He added: 'while this leads to unwelcomed uncertainty for shareholders in the short term, we do not believe the ultimate financial outcome will be bad news for investors,' reiterating his 'buy' stance on the shares.
The timing of the flotation is uncertain. Lloyds had planned to have spun off the Verde network by this summer. However, Reuters reports sources saying the IPO will not happen until the second half of next year, requiring the UK government and the EU to agree to extend their end-of-year deadline for the disposal.
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by Michelle McGagh on Dec 04, 2013 at 11:58