Co-op goes ahead with deal to snap up Lloyds branches [Financial Mail on Sunday, London]

July 15--HIGH Street banks will face their biggest competition challenge for a generation this week when Co-operative Group seals a pounds sterling 1 billion deal to buy 630 branches and their business from Lloyds.

The move will create a new force in retail banking with ten per cent of all bank branches and seven per cent of the current account market.

It will also fulfil one of the recommendations of the Independent Commission on Banking. The branch sell-off had been ordered by the European Commission as the price for Lloyds' State bailout in the credit crisis. But the ICB called for this to be used to create a 'challenger bank' to improve competition.

Co-op will hold a board meeting this week when the deal is set to be approved, with a formal announcement later in the week.

The move will almost triple the number of branches owned by the mutual, which has been a small player in the market dominated by Lloyds, Barclays, HSBC and Royal Bank of Scotland/NatWest.

And it comes amid reports that Co-op and Nationwide Building Society have seen an influx of customers disenchanted with the mainstream banks in the wake of outrage over big bonuses and the Libor-rigging scandal at Barclays.

The price being paid for the branches is far lower than early estimates, but Lloyds is understood to be willing to sacrifice short-term gain to conclude the drawn-out process.

Meanwhile, the Office of Fair Trading said last week it was launching a review of retail banks. It said it would look at charges levied on customers and whether it has become easier for customers to switch between banks.

:: ROYAL Bank of Scotland is planning to spin off its insurance arm as soon as this September. The division, which includes the Churchill and Privilege insurance brands as well Direct Line itself, could raise as much as pounds sterling 4.5 billion. But sources inside the bank said it was prepared to call off the initial public offering if the stock market was weak this autumn.

The disposal of the division was ordered by the European Commission as part of the price RBS had to pay for receiving State aid during the banking crisis. The group has until 2013 to sell the division, which made an operating profit of pounds sterling 454 million in 2011.

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