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Co-op prevails in Lloyds branch auction

by Laura Board in London | Published December 14, 2011 at 11:19 AM

The U.K.'s Co-operative Financial Services Ltd. has prevailed in the auction for 632 branches and other assets owned by Lloyds Banking Group plc. But the London seller, roughly 41% state-owned, will continue to prepare for an initial public offering even as it holds exclusive discussions with the Manchester, England, group.

Lloyds selected Co-operative Financial Services, an arm of U.K. mutual behemoth Co-operative Group Ltd., as preferred bidder over a rival offer from bank acquisition vehicle NBNK Investment plc. None of the parties have confirmed the value of the bids, which are both reported to be about £1.5 billion ($2.3 billion). That's about half the £3 billion the assets were originally expected to command in early summer and reflects a slump in the value of Lloyds and other banking stocks.

Lloyds said a sale to Co-op is its preferred option and it aims to agree on terms by the end of March. Between now and then, Lloyds and advisers J.P. Morgan Chase & Co. and Citigroup Inc. will work in tandem on a possible IPO of the assets.

Lloyds interim CEO Tim Tookey said the divestment "continues to move forward in line with our expectations."

"I am confident that we will complete the transaction by the end of November 2013, in line with the EC-mandated timescale," he added.

Tookey is temporarily replacing CEO Antonio Horta-Osorio, who last month shocked investors by taking sick leave due to exhaustion. Lloyds also said Wednesday, Dec. 14, that Horta-Osorio will return to the helm Jan. 9. Its shares were up 0.185 pence at 24.9 pence by early afternoon Wednesday, giving the bank a market value of £17.1 billion.

Brussels regulators ordered the divestment as a condition of state aid Lloyds received in January 2009 following the government-brokered acquisition of floundering rival HBOS plc. The U.K. government's banking holdings are housed in UK Financial Investments Ltd.

The state-appointed Independent Commission on Banking in September retreated from earlier suggestions that Lloyds should expand the EC-mandated disposal program, which Lloyds calls "Project Verde." But the ICB called on the government to ensure the buyer of the Lloyds' assets would eventually end up with at least 6% of the current account market.

Co-operative Financial Services already owns 2% and would instantly cross the 6% threshold by adding at least a 4.6% market share from the Lloyds branches.

NBNK expected that it could achieve that target within 18 months of closing a deal.

Formed last year by a group of banking industry heavyweights, NBNK has yet to secure its first operating assets. Last month it lost to Virgin Money Holdings (UK) Ltd. in the bidding for state-owned lender Northern Rock plc.

The Co-op's advisers are Credit Suisse Group, Barclays Capital and Linklaters LLP.

Cenkos Securities plc advised NBNK.

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Tags: Co-operative Financial Services Ltd. | Lloyds Banking Group plc

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Co-op prevails in Lloyds branch auction

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