After more than a year of negotiations the £750 million deal for the Co-op to buy more than 600 branches from taxpayer-backed Lloyds Banking Group has collapsed.
Lloyds said it will now float the 632 branches rebranded as TSB separately on the stock market. It will also have to rebrand its remaining 1200 branches, dropping the TSB name off the end.
The failure of the deal, known as Verde, comes as a major blow to the Government which not only wanted to see the deal through so it could start planning the sale of its 39 per cent stake but also because a combined Co-op/TSB could have created a substantial challenger bank to the High Street banks.
The Co-op blamed the faltering economy and increasing costs of bank regulation for the failure.
Chief executive Peter Marks said: “Against the backdrop of the current economic environment, the worsened outlook for economic growth and the increasing regulatory requirements on the financial services sector in general, the Verde transaction would not currently deliver a suitable return for our members within a reasonable timeframe and with an acceptable level of risk.”
Lloyds chief executive António Horta-Osório said that he was “disappointed” that the deal could not be done. He added: “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.”
A stock market flotation is unlikely to be ready soon enough to hit the European Commission’s deadline of the end of this year which was imposed after the £20 billion taxpayer bail-out of Lloyds.
Lloyds could not say how much money it had spent on the deal or how much rebranding would cost. It pointed out that it had always taken a “twin track” apporach to the sell-off but admitted that flotation was its “plan B.”
The TSB branches serve some 4.6 million customers in the UK and has about 5 per cent of the current account and mortgage market and 10 per cent of the country’s bank branches.
Any initial public offering of shares in TSB will have to be cleared by UK and European regulators. It is also unclear whether Lloyds would be able to sell 100 per cent of the business in one go.
Last October a similar enforced branch sale by Royal Bank of Scotland also collapsed. Santander which had offered £1.65 million for the 316 branches said it could not complete the deal “within a reasonable timeframe” while keeping the business in a “steady state.”