Co-op buys out 632 Lloyds banks

The Co-operative Group has bought Lloyds Banking Group, consisting of 632 Lloyds TSB and..

The Co-operative Group has bought Lloyds Banking Group, consisting of 632 Lloyds TSB and Cheltenham and Gloucester branches across the nation. 

The supermarket chain will pay £350m upfront and anywhere up to an additional £400m later on after the performance of their combined businesses has been taken into account. 

Lloyds needed a government bailout after buying HBOS. Lloyds, who are 40% owned by the tax payer, were urged to sell by European regulators. 

The Co-op now own Lloyds' 6% of the UK market and  their 4.8 million customer base. 

Under the new deal, it will boost the Co-op's banking arm to nearly 1,000. Its share of UK personal current account customers from 1% to 7% will also take a healthy shot in the arm. 

The BBC's business editor, Robert Peston, believes that the move isn't deemed as a complete takeover from Co-op but more of a 'renting' of their assets. 

He told the BBC: "In effect, Lloyds is lending the Co-op the purchase price. The Co-op's bank will operate off Lloyds' IT systems, and Lloyds is providing the senior management of the Co-op's enlarged bank. It is hard to think of any deal in which the seller has provided quite so much help to the buyer" 

The Chancellor, George Osborne, was enthusiastic about the rebranding: "This is another step towards creating a new banking system for Britain that gives real choice to customers and supports the economy. 

"The sale of hundreds of Lloyds branches to the Co-operative creates a new challenger bank and promotes mutuals. This follows the sale of Northern Rock to Virgin Money in January and represents another important step towards a more competitive banking sector." 

Indeed, image and perceived trust in a bank is of huge importance - a testament to which Lloyds group chief executive Antonio Horta-Osorio said: "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." 

Continuing the themes of renewed faith in the financial sector, Co-op chief Peter Marks told the BBC: "What the banking industry needs is to bring back trust. 

"We've seen over the last few years, and particularly over the last few weeks, trust has deteriorated in big banks. This represents a major change to the face of retail banking in the UK." 

The deal, while thought to go ahead without a hitch, is still subject to approval by the Financial Services Authority. It is estimated to be completed by December 2013.