Britain’s retail bank sector faced further shake-up Thursday as state-rescued Lloyds Banking Group agreed to sell 632 branches at a loss to The Co-operative Group after an EU competition ruling.
LBG, which is 40-percent owned by the British government, was ordered by the European Union to offload a sizeable chunk of its branches in exchange for a huge state bailout following the 2008 financial crisis.
“This is another step towards creating a new banking system for Britain that gives real choice to customers and supports the economy,” Britain’s finance minister George Osborne said in a statement.
“The sale of hundreds of Lloyds branches to The Co-operative creates a new challenger bank and promotes mutuals.
“This follows the sale of (nationalised) Northern Rock to (Richard Branson’s) Virgin Money in January and represents another important step towards a more competitive banking sector,” Chancellor of the Exchequer Osborne added.
The Co-operative, a British financial services-to-food mutual business, claimed the deal “would mark the biggest shake-up in high street banking in a generation.”
LBG chief executive Antonio Horta-Osorio said the sale worth an initial £350 million ($548 million, 446 million euros) would result in “a significant competitor on the high street with nearly 10 percent of today’s UK branch network.”
The Co-operative said it would run a network of almost 1,000 branches catering for 11 million customers as a result of the deal.
The announcement comes at the end of a week in which Britain’s under-fire banking sector has taken another heavy blow — as a top HSBC executive resigned over the lender’s failure to control money laundering and terrorist financing.
Europe’s biggest bank HSBC on Tuesday apologised for failing to apply anti-laundering rules as US lawmakers accused it of giving Iran, terrorists and drug dealers access to the US financial system.
It follows the Libor interest rate rigging scandal that has brought down top executives at Britain’s Barclays bank.
The Financial Times on Thursday said regulators are investigating Credit Agricole, HSBC, Deutsche Bank and Societe Generale over alleged manipulation of the Libor rate after Barclays was recently fined £290 million over the affair.
The Co-operative chief executive Peter Marks said the group’s deal to buy LBG branches “would help restore trust in a sector whose image has been badly tarnished over recent years” — also as a result of huge bank bailouts.
“The acquisition of the (offloaded LBG) Verde business would significantly advance our growth strategy, creating a combined bank approaching 7.0 percent market share of UK personal current account customers.
“That would allow us to really challenge the status quo on the high street,” he added.
LBG said The Co-operative would in time pay a further £400 million for its branches based on the performance of the purchaser’s combined banking business from completion up to 2027.
Analysts had expected a sale price of up to £1.5 billion for the deal that LBG on Thursday said was set to complete by the end of November 2013.
“In addition to an upfront consideration, we will also get to share in the future financial performance of the combined banking business which will be an effective challenger with a strong customer focus,” Horta-Osorio added.
LBG shares were down 0.11 percent to 29.74 pence following news of the deal on London’s benchmark FTSE 100 index, which was up 0.17 percent at 5,695.59 points in morning trade.
