Co-op board to meet next week to approve deal for 632 Project Verde branches
The Co-operative Group has edged nearer to a deal to buy up 632 branches being sold by Lloyds Banking Group under the Project Verde agreement.
A report in the Financial Times suggests the Co-op's board will meet early next week to approve the purchase and will make public the arrangements of the deal thereafter.
The FT reports the deal will be steeply discounted from the £1.5bn price tag mooted in earlier press coverage, though with certain caveats in which Co-op will make additional performance -based payments to Lloyds over a period of years.
The revised deal value is thought to be closer to £1bn.
Last month Lloyds announced both parties had come to an “understanding” on the deal.
Lloyds chose the Co-op as its preferred bidder in December, though the sale has been subject to lengthy delays due to the slow pace of negotiations with regulators.
Some of the regulatory uncertainty surrounding the Co-op offer has reportedly been addressed.
The concessions are believed to include plans for a Lloyds management team to transfer with the Verde business to run the Co-op's enlarged banking arm.
Lloyds is also said to be providing the systems and technology platforms needed to run a banking operation which would be three times the size of Co-op's current retail banking division.
And because the Co-op's financial services arm would dwarf the rest of its business as a result of the deal, the whole of the Co-op will have to be regulated as a financial institution.
The EU has demanded the sale of the Lloyds branches – which represent six per cent UK market share - is concluded by November 2013.
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.
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 only rival in the deal, NBNK, has since dropped its reported £1.5bn bid for the Project Verde branches, which Lloyds is being forced to sell by the EU in return for taxpayer-backed bailouts.
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 it taking assets valued at £45 billion on £35 billion of deposits.