Lloyds casts doubt over Co-op bank deal

A major question mark was raised over plans by Lloyds Banking Group to sell 632 branches to Co-op bank after the state-backed bank said the deal was proving "highly complex" and that a further market update would be needed within the next three months.

Lloyds made the admission alongside plans to create 500 new jobs to help service the business when it is spun off from Lloyds. The sale was mandated by the EU as the price for the multi-billion pound government bailout that kept Lloyds afloat during the financial crisis after its rescue of HBOS.

Lloyds made Co-op its preferred bidder after conducting an auction for Verde but has been lining up flotation plans in parallel in case the deal hits the sort of problems that it admitted yesterday.

Co-op had been going head to head with NBNK, the new "simple" banking business set up by Lord Levene but won after Lloyds decided that dealing with an existing player with an existing branch network would pose less "execution risk".

Analysts said the announcement amounted to a "warning shot" to Co-op although it did say the bank was "making progress" with the discussions.

Lloyds has to finish the disposal by the end of next year under the terms of the agreement with EU regulators.