Co-Operative Group Ltd. Chief Executive Officer Peter Marks said there are “very material regulatory issues” to its proposed purchase of branches from Lloyds Banking Group Plc, fueling concern the deal may collapse.
“This is a complex transaction and there is no certainty that we will meet final agreement,” Marks told reporters on a call today. “What is not in question is our ability to run a bank.”
Co-Op was in December named preferred bidder for the 632 branches that Lloyds has to sell by the end of November 2013 to comply with European Union state-aid rules after receiving a bailout. Lloyds last week delayed a detailed report to investors on the sale and said it would provide an update during the second quarter. Lloyds reiterated that it was preparing the division for an initial public offering.
“It is increasingly possible that this deal could fall through and that Lloyds will need to pursue a more costly IPO,” Gary Greenwood, an analyst at Shore Capital in Liverpool, wrote in a note to clients today. Greenwood said the Co-Op bank’s core Tier 1 ratio of 9.6 percent was “relatively weak” compared with other customer-owned lenders.
Lloyds shares declined 1.52 percent to 33.9 percent in London trading.
Marks said the firm had a permanent CEO for its bank “waiting in the wings,” in response to questions over whether the Financial Services Authority was holding up the deal because of concerns about a gap in the management. He declined to identify the person or explain why he could not do so.
Marks told journalists that the deal was being held up because the Co-Op was doing “proper due diligence” on the branches and would not be “rushed” into completing a sale. He said the deal would conclude in weeks not months.
The outlets on sale account for about 4.6 percent of the U.K. checking account market. The government-sponsored Independent Commission on Banking in September said the consumer banking market would “be much improved by the creation of a strong and effective new challenger by way of the Lloyds divestiture.”