James Moore: Lloyds deal with Co-op is best for high street

Outlook Life can't be easy for a banking group without a bank. It's even harder when you have investors who give you a lot of money with which to buy one, only to watch every available deal slip through your fingers.

NBNK and its directors are struggling to justify their existence right now, which was doubtless part of the reason for yesterday's attempt to butt in on Co-op's conversations with Lloyds over the (so far) stalled Project Verde deal.

The trouble is, it hasn't worked. Lloyds has acknowledged receipt of a letter from NBNK, but says it is pressing ahead with exclusive talks with the Co-op.

These have been beset with regulatory issues, and you can see why the Financial Services Authority might be a little concerned. Co-op is an enormous conglomerate owned by its customers, of which its small bank is only a small part. Verde would create a rather big bank, accounting for more than half the business.

All the same, as Co-op has pointed out, it has run the bank it has at a profit for several years, by contrast to certain larger rivals. What's more, in putting that bank together with Project Verde it ought to create a genuine, and rather distinctive, challenger to the existing players.

The alternatives are a flotation or reopening talks with NBNK, which was kicked out of the original bid process but says the proposal outlined yesterday offers something new.

Structurally that is indeed the case: NBNK says it has found a way to offer Lloyds shareholders either a cash payout or shares in the new NBNK bank.

This appears to be rather canny. If the company can indeed pull it off – and it would still need to tap its shareholders for the money – it is holding out the prospect of a windfall for Lloyds shareholders.

Lloyds might not be all that keen on this. A sale of Verde would provide it with a useful slug of capital that would keep regulators happy. But a certain rather large shareholder with a truly enormous debt problem might be.

The trouble is that rather large shareholder (the Government) has a stated policy of creating a challenger bank to the existing players. Verde, either floated as an independent business or sold to NBNK, would not have sufficient market share. As an addition to Co-op, however, it would. A powerful, new-look Co-op Bank would be a welcome force on the high street. If this can still be accomplished, it should be.