New deal sees 600 branches of Lloyds sold to the Co-operative Bank

A deal has just been struck between the bank Lloyds, and the Co-operative. The deal is going to see over 600 branches sold by Lloyds to the Co-operative. This is going to turn the Co-op into one of the most dominant banks on the UK high street.

Before the deal goes through the Co-op have a market share of high-street banks of around four percent, but once the deal is done, this is going to be increased significantly to 10 percent. This will mean that the bank is able to compete with some of the largest banks in the country, RBS, Barclays, HSBC and Lloyds.

The Chief Executive of the Co-op is Peter Marks and he has commented, “We have seen that people have lost faith in the banking sector and this is no more true than with the big banks that are seen as dominant in the market. By making this move we are creating a financial institution that people can really trust.”

It is estimated that because of the move around 5 million customers who previously banked with Lloyds are going to be transferring to the Co-op. Around 7000 staff are also moving to the new company.

Lloyds were forced to make the sale after they had to sell their branches in order to pay back a bailout that they received by the government in 2008. The transfer of the branches resources is going to mean that around £25 billion is going to be transferred to the Co-op in loans. Although this is seen as a good move for the government to get the money, it is well below the initial hopes of the deal, which thought that around £70 million would be transferred.

Regulatory approval is needed for the deal and it is estimated that Lloyds are going to be losing around £700 million because of the sale. The bank have stated however that the loss they are making is going to be acceptable because they are going to have a lower capital requirement. They stated that they expect their profits won’t be affected over the long-term.

The Chief Executive of Lloyds banking group is Antonio Horta-Osorio and he has stated, “We have obligations to meet financially and the sale of these branches is one of the ways we are having to do this. We think that the Co-op are a good choice to be the new owner of these branches and we think they will provide both staff and customers with a great experience. This will make Co-op a dominant player on the high street and this is something that we are pleased about.”

It was originally expected that Lloyds would be able to make around £1.5 billion from the sale, however this figure has recently been revised so that the company are only going to be receiving around £350 million in an upfront payment. Other payments are going to be spread over the coming 15 years and represent a value of about £400 million. Some of these figures have been tied directly to the performance of the group after it has received the branches through the sale.

The sale was made to the Co-op, despite the reported larger offer from the rival bank NBNK. This bank offered around £800 million up front in order to take a sale however a spokesperson from Lloyds commented, “We decided to go with Co-op because we feel they are going to be able to offer a better experience to our customers and ensure that our employees also get a better deal. Overall we are very satisfied with the sale.”