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Reports suggest Lloyds branch deal with Co-op under threat

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The Co-operative Bank’s deal to acquire 630 branches from Lloyds Banking Group could be under threat as reports suggest it faces a capital gap of £1bn.

The deficit – equivalent to half of the bank’s capital – is the first to become public after regulators began their analyses of bank balance sheets, according to the FT.

The FSA will outline the individual deficits of UK banks in the coming weeks.

Lloyds Banking Group agreed to sell 630 branches to the Co-operative Group in June 2012, beating out rival bidder NBNK.

Co-op was the preferred bidder for what was referred to as the Project Verde business, however it lost its exclusivity agreement with Lloyds the month before.

The FSA raised concerns over the deal in April and there were suggestions the Co-op could be made to hold an extra £3bn of capital at a group level.

Royal London is currently in talks with the FSA to finalise a deal to acquire Co-op’s life arm. The FT suggests Co-op is now also considering selling its non-life insurance and pharmaceutical businesses in order to address its capital gap and may also be forced to sell off parts of its bank loan or mortgage book.

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