Lloyds Investors Cheer the collapse of Co-op Bank Deal

The Co-operative Bank

The Co-operative Bank

Verde Deal Details and Reasons for it to collapse

The Co-operative Bank, which currently owns one bank branch and three outlets in Scotland, came forward in December 2011 to bid £ 750 million for part of a business owned by Lloyds Banking Group. It entered into a Memorandum of Understanding with “Lloyds Banking Group” to complete the purchase by November 2013.

“Lloyds Banking Group” had offered to sell to the successful bidder the portfolio popularly called in investment circles as “Verde” that included the banking entity “Lloyds TSB Scotland” with its 185 branches in addition to four other branches which operated under the Cheltenham & Gloucester banner. If this deal had successfully gone through, the Co-operative Bank would have emerged as country’s third-biggest branch network behind Lloyds Banking Group & Royal Bank of Scotland.

Co-operative Group’s chief executive Peter Marks in a press statement explained the rationale behind their decision to pull out of the deal with “Lloyds Banking Group.” citing the changed economic environment from the time they had entered into negotiations with “Lloyds Banking Group” in December 2011, worsening outlook for growth in the medium term for Europe and the increasing regulatory requirements on the financial services sector that might potentially prevent them from delivering a suitable return for their members within a reasonable timeframe.

Way Forward

Lloyds Banking Group, which invested more than one year into this failed deal not to mention around £500 million in the run up to this disinvestment, is taking this decision of the Co-operative Bank on its chin and has decided to bring to the front burner it’s fall back plan of hiving of Lloyds TSB Scotland holdings and other identified entities into a standalone financial institution to be newly named “TSB” and float it in the stock market via the IPO vehicle.

The newly minted “TSB” would boast of 632 branches across the UK and would be guided by a new management team & board members. It would be fully debt free, fully financed by its £25 billion balance sheet and would not be hampered by the financial burdens of its parent “Lloyds Banking Group”.

As per Lloyds Banking Group internal estimations, the new entity “TSB” would attract around £1.5 billion via equity when the IPO is offered between now and late 2014.

Background to Lloyds Banking Group decision to sell TSB

In the midst of the global financial crisis in 2008, Lloyds Banking Group approached the UK government to step in and help refinance the group’s activities in order to avoid a financial meltdown and the bank going belly-up. The government bailed out Lloyds Banking Group by pumping in billions of pounds in a series of interventions in exchange of stake in the company. The government’s stake in Lloyds Banking Group today stands at staggering 39 percent. The European Commission on its part came up with a prescription for the Lloyds Banking Group financial health recovery in exchange of the bailout package. As per the terms agreed & ratified by Lloyds Banking Group in 2011, they are to sell identified businesses, including Lloyds TSB Scotland, which form the portfolio “Verde” before November 2013.

In order to meet this commitment given by Lloyds Banking Group to the European Commission as well as for the government to recover its investment in the bank via the stake sale, it is imperative that over the next few months all the key stakeholders involved i.e., Lloyds Banking Group, the regulatory bodies , government, employees of the entities, would get rid of shares that are slated to be sold. More important, the bank’s customers and depositors should work in tandem to make sure that the proposed IPO of the new entity under the brand “TSB” becomes a grand success.

Avatar
Jay Raol

Recent Posts

Blackstone puts in an offer of $1.68 billion for St Modwen

Blackstone puts in an offer of $1.68 billion for St Modwen

Blackstone, the private equity firm, is planning to acquire St Modwen Properties, a logistics and housing developer, for £1.2bn ($1.68 billion) in a bid to take advantage of the P
1 day ago
Tesla to lose millions as Stellantis ends CO2 credit buying deal

Tesla to lose millions as Stellantis ends CO2 credit buying deal

Stellantis, the carmaker formed earlier this year by the merger of Fiat Chrysler and PSA, has revealed that it no longer needs to buy emission credits from Tesla, which will result
2 days ago
AB InBev CEO Brito to step down

AB InBev CEO Brito to step down

Anheuser-Busch InBev SA’s Chief Executive Officer Carlos Brito will step down from his role, effective July 1 and Michel Doukeris will succeed him as the new CEO. Brito, who beca
2 days ago
Australia’s Officeworks stops sales of Apple’s AirTags on child safety concerns

Australia’s Officeworks stops sales of Apple’s AirTags on child safety concerns

Officeworks, the Australian office supply store chain, has pulled Apple’s newly launched AirTags from its store following safety concerns for children from its button battery
3 days ago
Ex Google AI scientist joins Apple after resigning in protest for unfair practices

Ex Google AI scientist joins Apple after resigning in protest for unfair practices

Apple, Inc. has hired a former Google AI scientist who resigned in protest against the firing of two employees from the Ethics division. Sammy Bengio, the ex-Google employee, will
4 days ago
Solid Power raises $130 million in second funding round from Ford and BMW

Solid Power raises $130 million in second funding round from Ford and BMW

Solid Power, a solid-state battery system startup, has raised $130 million in Series B funding led by Ford Motor Company and BMW Group. The Louisville, Colorado-based SSB developer
4 days ago