Shareholders in the Lloyds Banking Group took a further blow yesterday when the company offloaded 632 of its branches to the Co-op – for £1.25bn less than it once hoped.
The deal will bring in just £350m to Lloyds upfront, with a further £400m possible depending on performance, and that only over the next 15 years.
The amount is less than half that first mooted a year ago, when the Co-op was just one of several potential bidders – the others included NBNK and Virgin Money. The terms left City analysts noting that the taxpayer, who owns 40 per cent of Lloyds, may have lost out. Lloyds is taking a loss of about £750m on the sale, which was ordered by EU regulators after its purchase of HBOS.
David Buik at BGC Partners said: "If I was a Lloyds Bank shareholder, I would be incandescent with rage. The Government should have insisted on a 'full and fair' price for this transaction – and this derisory amount of largesse is clearly not, despite bank values having fallen significantly from five years ago. Frankly this is daylight robbery."
Lloyds shares, well over 500p before the financial crisis, were yesterday steady at just 30p. The taxpayer took its stake in the distressed bank at a price of 73p in 2009.
NBNK, a venture set up by Lord Levene and run by Gary Hoffman, who ran Northern Rock after it collapsed, had no comment on the deal.
Banking industry sources, however, say NBNK had offered £800m in cash for the business as well as other elements. At one point a deal worth £2bn was mooted, money that Lloyds would have found useful. City analysts say it could have to pay out £1.5bn over allegations it was involved in the manipulation of Libor.
Peter Marks, group chief executive of the Co-op, said he had driven a "good deal" for his members. The Co-op is now promising to lead the biggest shake-up of high street banking for decades. It pledged to "bring back trust" to a battered industry.
The Chancellor, George Osborne, welcomed the deal. "This is another step towards creating a new banking system for Britain that gives real choice to customers and supports the economy."
Ian Gordon at Investec Securities said the deal allows Lloyds to move on. "The mandated Project Verde disposal has been an albatross around the necks of Lloyds' management"