Lloyds lashed by grandee whose bid for branches was blocked twice

Lloyds Banking Group and the Government acted in "bad faith" in the way Co-op was twice selected as the exclusive bidder for more than 600 Lloyds branches, MPs on the Treasury Committee have been told.

The accusation was made by Lord Levene, the City grandee who chaired Co-op's defeated rival NBNK. Appearing as part of an inquiry into the failure of the Co-op's bid for the branches – then called Verde – he claimed he had been told by Lord Mervyn King – the former Governor of the Bank of England –that the decision was going to be political and that he should "talk to politicians" if he wanted to win.

In an incendiary hearing before the Treasury Committee – which at one stage resulted in Labour's John Mann shouting angrily at chairman Andrew Tyrie over an attempt to get a point across – Lord Levene also accused Lloyds of "unattractive commercial practices".

And he said it was "untrue" to say that he didn't hand a document highlighting what NBNK thought were grave problems and risks with Co-op's bid to the Lloyds chairman, Sir Win Bischoff, who at the time was a friend of Lord Levene.

Lord Levene, a former civil servant, investment banker and chairman of Lloyd's of London, said: "I was instructed at a board meeting to take this document to the chairman of Lloyds. Both Mr [chief executive Gary] Hoffman and I attended that meeting and we can both confirm to you today – and if you'd like on oath – that we handed over that document on 27 January 2012 in his office. I can remember very clearly doing so.

"People have said with the benefit of hindsight that was a pretty perceptive document. That wasn't produced with the benefit of hindsight, it was produced with our advisers at the time. Unfortunately we were proved only too right."

Asked by Angela Leadsom if Sir Win was therefore "lying" by saying he had not received the document, Lord Levene said: "Maybe he had a senior moment. Maybe it dropped down the edge of a sofa, but if he says I didn't give it to him, that's untrue.

"In our view they [Lloyds] chose to concentrate on all the positive aspects of the Co-op and none of the positive aspects of ours...

"I believe that Lloyds were swayed by political considerations. I would say that their assessment of our bid was not done fairly. I was told at one stage, quite late, that I should look at the reference to financial services in the Coalition agreement. One of those said it was in the interests of the Coalition to promote the interests of mutuals. Clearly the Business Secretary [Vince Cable] was a big supporter of mutuals... I didn't understand the full inference at the time."

NBNK entered the bidding process in 2011 and was allowed back in 2012 after the Co-op failed to meet deadlines, but ultimately lost out. The Co-op's bid subsequently collapsed and it then emerged it had a £1.2bn hole in its accounts.

Asked why he didn't realise the auction of part of a state-supported bank would be political, Lord Levene simply said: "We believed we were in a fair process."

He said Mr Hoffman had stated the sole reason for rejecting their bid was on the grounds that there was "less execution risk" than with the Co-op and it was not on financial grounds. Lord Levene added they had offered meetings with their corps of blue-chip investors to demonstrate their commitment and funding, but Lloyds turned then down.

Despite the alleged bad faith and his losing £60,000 on NBNK shares, Lord Levene, who is no longer a shareholder, said he would not pursue legal action against Lloyds. But there have been rumblings among remaining NBNK shareholders that they could pursue this option.