Lloyds investors count the cost of cut-price branch deal with Co-op
Bank's shareholders take a £750m loss on the sale, as one analyst says: 'Frankly, this is daylight robbery'
Friday 20 July 2012
Shareholders in the troubled Lloyds Banking Group took a further blow yesterday when the company finally offloaded 632 of its branches to the Co-op – for £1.25bn less than it once hoped.
The sale, codenamed "Project Verde", 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 around £750m on the sale, which was ordered by EU regulators in the wake of 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 which was set up by Lord Levene and run by Gary Hoffman, the man who ran Northern Rock after it collapsed, had no comment on yesterday's 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 £2 bn 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 the industry.
The deal takes the Co-op's total branches to almost 1,000 and increases its share of the UK personal banking market from 1 per cent to 7 per cent.
It gets 4.8 million Lloyds customers in the process, who may become members of the Co-op if they wish.
Mr Marks says that banking's traditional players are tarnished by "horrendous scandal".
"We are already seeing a massive increase in people wanting to put their money with us," he said. "We are different. We are owned by our customers, not driven by short-term profit. We are not looking over our shoulder at the share price. We have social goals, social responsibility."
He said the aim is to develop a "boring, utilitarian kind of bank.
"We are not at the racy end," Mr Marks added.
"We don't support profits by taking risks in the market."
The Financial Services Authority has still to formally approve the deal, but it is assumed that earlier concerns about management and systems have been assuaged.
Lloyds' own IT platform will be used, which should reduce the risk of the migration of accounts to the Co-op being problematic.
Co-op will use the TSB brand initially, with Verde chief executive Paul Pester staying to run the combined business.
Ian Gordon at Investec Securities said the deal at least allows Lloyds to move on.
"The mandated Project Verde disposal has been an albatross around the necks of Lloyds' management ever since the EC state-aid sanctions were first announced."
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," he said.
Lloyds group chief executive Antonio Horta-Osorio said: "In agreeing to move ahead with the Co-operative we provide greater certainty for our customers and for our shareholders."
Added Mr Marks :"What the banking industry needs is to bring back trust. We've seen over the last few years, and particularly over the last few weeks, trust has deteriorated in big banks."
The upfront, £350m is being funded through the sale of Co-op debt, bonds that are being underwritten by Lloyds.
The deal is expected to be completed by the end of November 2013.
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