Lloyds Banking Group Plc’s plan to sell branches to Co-Operative Bank Plc was “political” and the process was conducted in “bad faith,” according to Peter Levene, whose NBNK Investments Plc lost out in the bidding.
Levene, 72, the former chairman of NBNK, said to a Treasury Committee hearing in London today that Mervyn King, then-governor of the Bank of England, told him in May 2012 that it was a political decision. The U.K. coalition government had agreed to further the interests of mutual, customer-owned lenders, Levene said.
Lloyds “chose to concentrate on all the positive aspects of Co-Op and none of the positive aspects of our bid,” Levene told the committee. “Lloyds were swayed by political considerations.”
NBNK, created in 2010 to acquire bank assets, lost out to Co-Op Bank to buy 632 branches of Lloyds in 2012. Co-Op Bank abandoned its bid last year, disclosed a 1.5 billion-pound ($2.5 billion) capital shortfall in June, and faces a formal investigation by regulators amid allegations its former chairman bought drugs.
Levene, a former chairman of the Lloyd’s of London insurance market, reiterated that NBNK’s offer for the branches exceeded Co-Op Bank’s. That contrasted with testimony last June from Lloyds Chairman Win Bischoff, who told the Treasury committee its decision was based on “execution and price” and that it had faced no political pressure to favor Co-Op Bank.
Levene said today that he gave Bischoff a report in January 2012 detailing concern about Co-Op Bank’s structure, computer systems and finances, and whether it would be able to raise funds for the Lloyds branches. Bischoff said he didn’t receive such a report, according to written evidence to the Treasury Committee published today.
“We weren’t bad losers -- it was an appalling winner,” Levene said today. To go ahead with Co-Op Bank was “a terrible decision.”
Officials for Lloyds and Bischoff declined to comment. King didn’t immediately respond to an e-mailed request seeking comment.
Lloyds, in which the government has a 33 percent stake, must divest the branches under European Union rules after it received more than 20 billion pounds of state aid during the banking crisis. It’s planning an initial public offering of the TSB outlets this year.
The U.K.’s Prudential Regulation Authority, a unit of the Bank of England, this month started a probe into the role of former senior managers at Manchester, England-based Co-Op Bank. The lender said in December it would review its governance structure after Paul Flowers, the former chairman of its banking unit, was allegedly caught by the Mail on Sunday newspaper buying illegal drugs.
Co-Op Bank also suffered from bad debts stemming from the purchase of Britannia Building Society in 2009. Loan impairments more than quadrupled to 468.7 million pounds in 2012, the company said in March.