Co-Op Deal To Buy Lloyds Branches Collapses

Lloyds Banking Group's sale of more than 600 branches to the Co-operative Group has fallen through.

The Co-op - which pulled out of the £800m deal - said it was "not in the best interests of the Group's members" at the present time.

"This decision reflects the impact of the current economic environment, the worsened outlook for economic growth and the increasing regulatory requirements on the financial services sector in general," the company said in a statement.

It comes after Sky's City Editor Mark Kleinman highlighted doubts about the takeover plans in February.

If the deal had gone ahead, the Co-op bank would have doubled in size

The UK's financial regulator had concerns over the Co-op Bank's capital position, he said.

Lloyds is being forced to dispose of the branch network - known as Project Verde - by European regulators in return for the £20bn of state aid it received at the height of the 2008 banking crisis.

The part-nationalised bank now intended to sell the network through an initial public offering (IPO).

Lloyds' chief executive, Antonio Horta-Osorio, said the company was disappointed by the Co-Op's decision.

"However, we are well advanced in our plans to bring the Verde business to the UK high street during the summer through the TSB Bank, and will now proceed with the option to IPO the business, subject to the necessary approvals," he said.

"The TSB Bank will be an attractive retail and commercial bank that will have around 630 branches across the UK, a strong management team and will be a real challenger on the high street."

If the deal had been completed, the Co-op would have doubled in size with around 1,000 bank branches across the UK - making it a viable competitor to the "Big Four" lenders - Lloyds,HSBC, Barclays and Royal Bank of Scotland (RBS).

Its collapse comes after Santander UK withdrew from a deal to buy 316 RBS branches in October last year.

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