By Max Colchester and Jessica Hodgson
LONDON--Lloyds Banking Group PLC (LYG) Thursday said it will sell 632 of its retail branches to the Co-Operative Group Ltd (CPBB.LN), sealing a long-awaited deal that will transform the funerals-to-food group into the U.K.'s sixth-largest retail banking business with around 10% of the U.K. market.
Lloyds agreed to sell the branches for an initial consideration of GBP350 million, and up to an additional GBP400 million in present value--equivalent to around GBP800 million on a nominal basis subject to performance of the Co-Operative groups combined banking businesses over a 15-year period.
The figure is significantly below the estimated GBP1.5 billion that was reportedly offered when discussions began a year ago, reflecting the decline in the value of bank assets over the period.
Lloyds, which is roughly 40%-owned by the U.K. government, has to sell the branches on condition of receiving state aid when it was bailed out in 2008. But the sale, code-named Verde, has been dogged by regulatory issues related to the experience of the Co-Op's board and the amount of capital the group would have to hold if it boosted its banking business.
The sale of the branches is heralded by the British government as a way to boost competition in the U.K. banking sector. "This is another step towards creating a new banking system for Britain that gives real choice to customers and supports the economy," George Osborne, the U.K. Chancellor, said in a statement Thursday.
The Verde business has 632 branches and makes up 6% of the U.K. branch network and, when combined with the Co-Op's existing banking business, it makes up around 7% of U.K. current accounts.
The U.K.'s Independent Commission on Banking said a standalone bank needs to achieve 6% market share in order to be competitive.
"We believe the Co-Operative will be a good owner for our business, customers and colleagues, and the combined banking business will be a significant competitor on the high street with nearly 10% of today's U.K. branch network," Antonio Horta-Osorio, Lloyds' chief executive, said in a statement.
The Lloyds statement said the Co-Operative Group was expected to inject the branches with GBP1.5 billion of equity capital. The branches will have approximately GBP11 billion of risk-weighted assets on a standardised basis.
-Write to Max Colchester at firstname.lastname@example.org
(Ainsley Thomson in London contributed to this article.)
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July 19, 2012 02:38 ET (06:38 GMT)
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