Co-op deal to buy 200 Lloyds branches snagged by £1bn hole

A deal for the Co-operative Bank to purchase over 600 branches from Lloyds Banking Group could be scupppered by a £1 billion cash deficit.

The FSA had discovered the deficit in the Co-op’s capital reserves in an industry-wide review of balance sheet strength following a warning made by the Bank of England last November over a £50 billion shortfall in the industry.

It is believed the Co-op is looking at selling some assets, to include its non-life insurance operations, in order to address the shortfall. A potential sale of its life assurance business to Royal London could bring in about £200 million to the group.

The plans to buy up the Lloyds branches would still be thwarted by the remaining deficit however. Management changes are not helping matters. The Co-op’s finance director James Mack, who has been working on the deal, is exiting the business, and its chief executive Peter Marks is due to retire by May.

The Co-op is understood to be looking into bringing in a partner to join the Lloyds deal to help it gain more capital, as since it is a mutual it has few routes to do that itself.

Lloyds has to sell the branches to satisfy EU rules around its £20 billion government bailout in 2008.

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