Britain’s biggest mortgage lender chose Co-Op over a competing offer from NBNK Investments Plc (NBNK), created by former Lloyd’s of London Chairman Peter Levene, because it offered more money, Bischoff told the Treasury Select Committee in London today. Levene said that the government had decided that Co-Op’s customer-ownership made it the “preferred and definitive solution,” in a separate statement to the committee.
“We would have been perfectly happy for NBNK to have won this particular transaction,” Bischoff, 72, said. “There was no political pressure. We looked at it purely from the point of view of execution and price.”
Co-Op Bank, a British customer-owned lender, dropped its bid for the branches in April after regulators expressed concern that its managers didn’t have enough banking experience to run the enlarged business and the firm lacked capital. Co-Op Bank said yesterday it would plug a 1.5 billion-pound ($2.3 billion) capital shortfall by asking existing bondholders to exchange subordinated debt for new equity and senior debt, and raise 500 million pounds with the sale of insurance assets.
Bischoff said Lloyds only identified the capital shortfall at Co-Op in December when it submitted a more detailed bid and was reassured by the mutual that it could plug the hole.
“In our own analysis of that combined information for us, it was reasonably clear that the assumptions of the plan had changed and there was a shortfall of capital,” Lloyds Chief Executive Officer Antonio Horta-Osorio, 49, told the committee. When we approached Co-Op they told us “we have several options and we are revising the plan and the options we have together with the regulator to address this situation,” he added.
Regulator’s hadn’t warned about the capital shortfall, though said the Co-Op bid would need to be approved, Horta-Osorio said.
Co-Op’s bid was valued at about 700 million pounds, compared with NBNK’s offer of 630 million pounds, he said.
Lloyds also chose the Co-Op bid because the mutual already had an established bank, a relationship with the U.K. regulator and a rating from the credit agencies, Bischoff said.
Lloyds said it had approached 42 potential bidders with details of the branches and eight or nine parties showed some interest in the assets.
The 39 percent government-owned lender has been told to sell the branches by the European Union after it received more than 20 billion pounds of state aid during the banking crisis. It’s planning an initial public offering of the outlets next year.
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