Co-op's main rival for the Project Verde branches has withdrawn from the bidding process
Lloyds Banking Group's sale of 632 branches to the Co-operative Group appears to be back on track with both parties having come to an “understanding” on the deal.
Co-op's only rival in the deal NBNK, has dropped its bid for the Project Verde branches, which Lloyds is being forced to sell by the EU in return for taxpayer-backed bailouts.
The EU has demanded the sale of the branches – which represents six per cent UK market share - is concluded by November 2013.
Lloyds, which remains more than 40 per cent taxpayer-owned, ended an exclusivity agreement with the Co-op in April, which allowed other bidders to come forward.
Co-op's bid for the branches has not been disclosed, though it topped NBNK's £1.5 billion bid.
Co-op currently has around two per cent of the UK current account market with 345 branches managing £45 billion in assets, and a successful bid for the Lloyds branches would give it a six per cent market share.
This is the minimum share required to create an effective competitor for the UK market, according to the Independent Commission on Banking.
However the Co-op is believed to have tailored its bid to reduce the number of mortgage accounts being sold within the divestment package.
This would reduce a funding gap on its deposits and around £30 billion in loans being sold by Lloyds.
Co-op had insisted on a funding gap of no more than £5 billion between assets and deposits.
Most of the assets Co-op has asked to be removed from the sale are linked to mortgages.
NBNK's earlier rival bid would have left it with a £10 billion funding gap based on its taking assets valued at £45 billion on £35 billion of deposits.
In its revised bid tabled last week, NBNK said it would take the cost away from Lloyds in floating the branch network itself – an option Lloyds has not ruled out – as well as giving Lloyds the option of taking cash or shares in the new company.