Co-operative bank clinches deal for 632 Lloyds branches

Lloyds Banking Group is poised to announce a formal agreement to sell 632 branches to the Co-op in a move that will create a new competitor on the high street but raise questions about the price that the bailed-out bank achieved for the branches. The long-awaited on-off sale is expected to be clinched in the next 24 hours and will bolster the Co-op's banking presence to 1,000 branches – from 354 now, giving the mutual a 7% share of the current market. The deal was forced on Lloyds by the EU in return for £20bn of state aid. It is likely to be welcomed by the government which wants to bolster banking competition, particularly at a time when traditional banks are mired in controversy. "Heads of agreement" were still being finalised Wednesday night, and while there had been hopes a year ago that the branch sale might fetch up to £1.5bn such a price tag is now believed to be unlikely. In June Lloyds had said it was in the final phase of protracted discussions. António Horta-Osório, the Lloyds chief executive, made achieving the sale of the branches one of his priorities when he took the helm a year ago. The deal with the Co-op is significantly behind the original timetable because after the mutual warned in March there were "some very material regulatory issues". The Co-op chief executive, Peter Marks, had admitted that he could not "predict whether we'll get to the end on this" . The enlarged Co-op would be cited as a major competitor to the "big four" – Lloyds, Royal Bank of Scotland, HSBC and Barclays – although the deal is likely to take another year to complete. Other new competitors include Virgin, which bought Northern Rock at the start of the year, and Marks & Spencer, which this week announced a new current account that will charge customers of the retailer. RBS, 83% owned by the taxpayer, is also in the process of selling branches under an EU-mandated deal to Santander. That deal has also fallen behind timetable.