Shadow over Co-op bid for Lloyds as rivals allowed in

Lloyds Banking Group is still in discussions with the Co-op but said renewed interest from financial investment firm NBNK meant it would consider detailed discussions with other parties.

NBNK, headed by former Northern Rock boss Gary Hoffman, recently outlined a proposal that would see the branches floated on the stock market to create the UK’s first “no bonus bank”.

Its interest comes after the Co-op’s bid was held up by protracted talks with regulators over a deal to buy the branch estate being offloaded by Lloyds as a penalty for accepting a taxpayer bailout.

The European Union is forcing Lloyds to sell the 632 branches in return for state aid received during the 2008 crisis which left the taxpayer with a 40 per cent stake.

The sale, code named Project Verde, is likely to fetch up to £1.5bn ($2.4bn) and will create Britain’s seventh-biggest bank.

NBNK earlier this month proposed an alternative deal that would see no redundancies or branch closures and would “create a new, large challenger bank and brand that will shake up UK high street banking”.

It said its revised offer would give Lloyds none of the costs or uncertainties of floating the business itself and would give it the option of taking cash or shares in the new company.

Lloyds and the Co-op had been in exclusive talks and were supposed to reach an initial agreement by the end of March.

But this was delayed amid questions over whether the Co-op has an experienced team and the right structure to run the enlarged business.

Co-op chief executive Peter Marks recently hit back at critics, saying: “We know how to run a bank.”

Lloyds has said it could spin off and float the business if it failed to find a suitable buyer.

Many bankers and analysts see that as the most likely option, because they are uncertain whether NBNK would have a much better chance of getting past regulators than the Co-op.

The FSA is discussing key issues with potential buyers and will publish a “no objection in principle” guidance once satisfied.

“We remain in talks and we remain the preferred bidder. We continue to make progress,” a spokeswoman for the Co-op said.

A spokesman for NBNK said.

“We have maintained a constructive dialogue with the FSA and are confident we will be able to meet the regulatory criteria laid down.”

LLoyds will provide a further update on its plans by the end of June.

The assets being sold account for a 4.6 per cent share of the UK current account market and up to 19 per cent of Lloyds’ mortgage book.