Lloyds strikes £800m branch sales deal with Co-op

Lloyds Banking Group announced today (19 July) it is set to receive £800m from the sale of its 632 branches to the Co-Operative Group, after the two banks signed heads of agreement for the transaction to proceed.

The Co-op will pay the group an initial consideration of £350m, and up to an additional £400m in present value – equivalent to around £800m on a nominal basis – based on the performance of the Co-operative’s combined banking business from completion up to 2027.

The price is well below initial press reports that the sale would garner a valuation of £1.5bn and is significantly lower than the £1bn quoted in several reports as an agreed discounted price.

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The Verde business has a balance sheet of £24bn with fully ‘matched’ assets and liabilities.

At the end of last month, Lloyds confirmed that it had agreed terms with the Co-operative Group on the planned sale of the 30 branches, with the two parties having entered a period of exclusivity on the transaction.

Lloyds said the Verde business will add £1.5bn of equity capital to the Co-op. Under an Internal Ratings Based (IRB) capital model and subject to regulatory approval, the equity capital requirement is expected to be in the range of £1.2bn to £1.4bn.

Lloyds said it will continue to work with the Co-operative to agree a sale and purchase agreement, with completion of the divestment expected by the end of November 2013.

Lloyds said that it expects the loss on disposal will be broadly offset by lower capital requirements from a reduction in the group’s risk weighted assets. The divestment is not expected to have a material effect on the future profitability of the group, it added.

António Horta-Osório, group chief executive, said: “Today’s agreement is an important step in meeting our obligations under the mandated sale of our branches.

“In agreeing to move ahead with the Co-operative we provide greater certainty for our customers and for our shareholders.

“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.”