Co-op defends plans to buy Lloyds branches


The boss of the Co-operative Group insisted "we know how to run a bank" today after speculation that its £1.4 billion bid to buy 632 Lloyds branches is in jeopardy.

The supermarkets-to-funerals business was named preferred bidder for the branches but regulators are reportedly concerned by a lack of banking expertise on its board.

Chief executive Peter Marks admitted there was no guarantee the deal would go through but said the group's ability to run a bank should not be called into question.

He told Sky News: "We have run a successful, ethical, socially responsible bank for over 100 years. During the credit crunch, when a lot of banks were collapsing, we sailed serenely through, stronger than ever. We know how to run a bank."

Mr Marks's comments come as the wider group revealed a 5.8% fall in pre-tax profits to £373 million in 2011, with its 2,800-store grocery arm suffering a 2.1% fall in like-for-like sales.

Mr Marks added the Co-op had put in "a solid set of results against the toughest economic background I have seen in more than 40 years".

Its 345 branch banking division, which also operates online bank Smile, reported that underlying profits were flat at £201 million.

It hopes its deal to buy the branches Lloyds was ordered to sell-off after receiving a taxpayer bail-out will help it be a "real challenger" to the 'big five' in the banking industry.

However, its hopes of signing a deal by the end of March have been put back while the business focuses on securing the support of regulators.

It is facing questions about whether it has a sufficiently experienced team to run the enlarged business, while there are concerns about a structure that involves a group board and number of subsidiary boards.

The Financial Services Authority is also examining the mutual's capital strength in the event of another financial crisis.

It today said the deal would only proceed if it was in the interests of members and gained the approval of regulators, signalling that the decision may be delayed.

It has recently been reported that NBNK, which is headed by former Northern Rock boss Gary Hoffman, is planning a fresh approach for the branches if the Co-op deals falls through.

Meanwhile, the group's food business, which expanded through the acquisition of Somerfield and serves 14.5 million customers a week, has suffered problems over the past year integrating new IT systems.

It also faces increased competition as Tesco and Sainsbury's open large numbers of convenience stores.

But the group said sales are on an improving trend after a difficult first half of the year, with sales down by just 0.2% in the final quarter.

The bank said the falling sales reflected the squeeze in consumers' incomes as wages fail to keep up with high inflation.

Mr Marks added: "Consumers have been assailed by rising costs, credit squeeze and uncertainty about the future to an extent unparalleled in recent times.

"Against this background, I believe this is a creditable performance."