Co-op to buy 632 Lloyds branches

The Co-op will pay current owners Lloyds Banking Group £350m upfront and another £400m over the next 15 years depending on performance.

If regulatory approval is granted as expected, the Co-op will significantly strengthen its position in the UK retail banking sector. Its customer base will grow to 11 million, branch numbers to 1,000 – about 10% of the UK’s network – while its share of the current account market will swell to about 7%.

Peter Marks, group chief executive of the bank’s owner The Co-operative Group, says the expansion of a “member-owned, customer-led, ethically-driven” bank provides consumers with an alternative to the high street giants.

He adds: “This would be a great deal because it would help restore trust in a sector whose image has been badly tarnished over recent years.”

The deal will also see what could be the brief return of the TSB brand in the UK. Under the terms of the deal, Lloyds Banking Group will rebrand the branches to be sold TSB from summer 2013. They will be handed to Co-op as TSB branches in November when the Co-op will consider renaming them to match its existing network.

The deal is likely to see a significant uplift in marketing activity from the Co-operative. It is already planning to increase ad spend with spots focusing on products and ethical investment policy to tap into public anger over the actions of banks.

It could also lead to a shake-up and swelling of its marketing team. A spokesman would not be drawn on future personnel plans, except to confirm Paul Pester as the combined entity’s chief executive.

The sale was ordered by European Union regulators in 2009 because of competition concerns after Lloyds Banking Group bought HBOS during the financial crisis.

It follows the sale of hundreds of Northern Rock branches to Virgin Money last year.

Chancellor George Osborne welcomed the Co-op deal as another step “creating a new banking system for Britain that gives real choice to customers and supports the economy”.

He adds: “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.”