Bloomberg News

Lloyds to Sell Branches in IPO as Co-Operative Drops Bid

April 24, 2013

Co-Operative Drops Lloyds Branches Purchase; Lender to Hold IPO

A Lloyds Bank Limited sign hangs outside a Lloyds TSB bank branch, part of the Lloyds Banking Group Plc, in Bury St. Edmunds, U.K. Photographer: Chris Ratcliffe/Bloomberg

Lloyds Banking Group Plc (LLOY), the U.K.’s biggest mortgage lender, plans to sell 632 branches in an initial public offering after Co-Operative Bank Plc pulled out of an agreement to buy the assets.

“We are disappointed that the Co-Op is unable to complete this transaction,” Lloyds Chief Executive Officer Antonio Horta-Osorio said in a statement today. The bank will “now proceed with the option to IPO the business.”

Co-Op, a British customer-owned lender, had been struggling to complete the 750 million-pound ($1.14 billion) purchase since the deal was agreed in July as regulators expressed concern that its managers didn’t have enough banking experience to run the enlarged business and the firm lacked capital. The purchase would have more than doubled the number of Co-Op Bank outlets.

“This deal has been in trouble from the start,” said Simon Maughan, a banking analyst at Olivetree Securities Ltd. in London. “It shouldn’t have too much of an impact on Lloyds as their plans for an IPO are well-advanced.”

Lloyds shares rose 1.1 percent to 51.98 pence as of 8:20 a.m. in London trading today, bringing their gain this year to about 8.3 percent.

Co-Op cited the worsening outlook for economic growth and increasing regulatory requirements for financial-services firms for the move. The deal “would not currently deliver a suitable return for our members within a reasonable timeframe and with an acceptable level of risk,” the bank said in a statement. Co-Op spent 38.1 million pounds in 2012 on the bid.

TSB Rebrand

Lloyds is in the process of separating the branches’ computer systems from their parent and will rebrand the branches for sale under the TSB name over the summer.

The bank will now have to build a treasury operation for the branches which it wouldn’t have had to create had the sale to Co-Op been completed, said a person with knowledge of the process who asked not to be identified because they were not permitted to talk publicly. The cost of separating the business may total about 1.3 billion pounds, the person said.

The decision also makes it more likely Lloyds will have to seek an extension to the November deadline for the sale set by the European Union to comply with state-aid rules after the lender received a government bailout in 2008.

Officials at Lloyds and Co-Op declined to comment beyond the statements.

Royal Bank of Scotland Group Plc, Britain’s biggest publicly owned lender, is also weighing an IPO of 316 branches after Banco Santander SA abandoned talks to buy them in October.

Lloyds is slated to post first-quarter results on April 30.

To contact the reporter on this story: Gavin Finch in London at gfinch@bloomberg.net

To contact the editor responsible for this story: Edward Evans at eevans3@bloomberg.net


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