Lloyds Banking Group Plc (LLOY), the U.K.’s biggest mortgage lender, may post a loss of as much as 1.15 billion pounds ($1.8 billion) on the sale of 632 branches to Co- Operative Bank Plc almost three years after the European Union ordered it to find a buyer.
Lloyds agreed to sell the branches for an initial 350 million pounds to comply with its government bailout. Co-Op will pay a further 400 million pounds based on the performance of the unit, London-based Lloyds said in a statement today. Lloyds may provide 1.5 billion pounds of equity capital to complete the sale by November 2013.
Lloyds was forced to sell the branches to comply with EU state-aid rules after receiving a 20.3 billion-pound rescue following the 2008 credit crisis. The bank selected Co-Op, a customer-owned lender, as preferred bidder in December over NBNK Investments Plc (NBNK), which offered about 1.5 billion pounds for the branches.
The sale “has been an albatross around the necks of Lloyds’s management ever since the EC state-aid sanctions were first announced,” said Ian Gordon, an analyst at Investec Securities in London in a note to investors. The loss “reflects Lloyds’s uncomfortable status as a forced seller and may underwhelm,” he said.
Lloyds is selling about 24 billion pounds of assets, down from 68 billion pounds originally planned, which will reduce the potential loss of earnings following the sale, Credit Suisse Group AG analyst Carla Antunes-Silva said today.
The shares gained 0.4 percent to 29.9 pence at 10:32 a.m. in London trading, valuing the bank at 21 billion pounds.
Co-Op will acquire 4.8 million customers with 3.1 million checking accounts, providing the combined company with 7 percent of the consumer account market, Lloyds said. Upon completion, Co-Op will have almost 1,000 branches. The division will be led by Paul Pester, who currently oversees the unit being sold by Lloyds, Co-Op said in a separate statement.
Co-Op has been working with the Financial Services Authority to reassure the regulator it is a “good home for the business,” Co-Op Chief Executive Officer Peter Marks told Bloomberg Television’s “On the Move” with Francine Lacqua. “We still have work to do with the FSA, but have a high level of confidence that they will be satisfied,” said Marks.
The sale plan was welcomed by Chancellor of the Exchequer George Osborne as “another step towards creating a new banking system for Britain,” in a statement today. The sale creates a “new challenger bank,” he said. U.K. taxpayers still own about 40 percent of Lloyds.
The government-sponsored Independent Commission on Banking in September said the consumer banking market would “be much improved by the creation of a strong and effective new challenger by way of the Lloyds divestiture.”
“Today’s agreement is an important step in meeting our obligations under the mandate sale of branches,” Lloyds CEO Antonio Horta-Osorio said in the statement. “In agreeing to move ahead with the Co-Op we provide a greater certainty for our customers and our shareholders.”
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