LLOYDS Banking Group has reached an agreement to sell 632 branches to the Co-operative Group in a deal worth up to £750m.
The part-nationalised bank, which is offloading the branches to meet European Union rules on state aid following its Government bailout, hopes to complete the sale by the end of November next year.
Under the deal, the Co-operative will pay £350m initially and a further potential £400m based on performance until 2027 – but the price is far short of the £1.5bn price tag first mooted.
The Treasury welcomed the announcement, which it said formed part of a raft of measures to reform the banking system and improve competition.
The Co-op said the purchase would create a “real challenger bank” on the high street, tripling the size of its banking arm to nearly 1,000 branches and increasing its share of UK branches to around 10 per cent
The business will bring around 4.8 million customers to the Co-op, meaning the combined business will have a near-seven per cent share of the current account market.
Chancellor George Osborne said: “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.”
Lloyds said the Treasury was “very supportive” of the deal.
Its announcement comes after lengthy talks and mounting speculation that the deal was on the rocks.
Lloyds chose the Co-op as its preferred bidder in December, but the sale plans suffered a series of delays and initial hopes to sign a deal by the end of March were dashed due to protracted talks with regulators.
It is also thought the sale price was hit by the sharp deterioration in the economy, as well as a reduction in mortgage loans to ensure assets and liabilities are more evenly matched.
Peter Marks, group chief executive of the Co-op, said: “This deal would deliver the biggest shake-up in high street banking in a generation. Consequently, we believe this would be a great deal for customers, for the public, for UK banking generally and for The Co-operative Group in particular.”
He claimed the earn-out element of the deal will see the taxpayer share in the future profits of the enlarged bank. Lloyds said there would be no changes for the 4.8 million customers affected by the deal until next year.