Lloyds Banking Group Announcement

The Co-operative Group hails great deal that would mark the biggest shake-up in high street banking in a generation

The Board of The Co-operative Group has agreed to proceed on the basis of non-binding heads of terms with Lloyds Banking Group (“LBG”) in relation to the acquisition of the “Verde” business. The move by The Co-operative Group would create a real challenger bank on the High Street with almost 1,000 branches.

The Co-operative Group and LBG are now working towards agreeing definitive, binding documentation, subject to the satisfactory completion of further due diligence and Board approvals. Completion of the transaction is expected before the end of November 2013 and will be conditional on, among other things, regulatory approvals from the FSA, HM Treasury and the European Commission.



  • The Co-operative Group to acquire 632 branches from LBG with an estimated 4.8m customers, thus creating an enlarged Co-operative Banking Group, differentiated through the quality of its customer-centric, member-led, ethically driven, banking model
  • The acquisition meets the recommendation from the Independent Commission on Banking to create a challenger bank with a market share approaching 7% of today’s UK personal current accounts
  • The transaction would accelerate delivery of The Co-operative Group’s strategy, creating the compelling co-operative alternative with a combined bank network of almost 1,000 branches across the UK, representing nearly 10% of today’s UK bank network and 11m customers
  • The acquisition would increase the scope and reach of The Co-operative Group as a whole and enable The Co-operative Banking Group, through an extensive branch network, to provide banking services to The Co-operative Group’s wider member and customer base
  • Paul Pester, currently Chief Executive of Verde, would become Chief Executive of the combined banking business, subject to FSA approval.

Under the heads of terms:

  • The Co-operative Banking Group to pay LBG an initial consideration of £350m; with a further £400m of additional earn-out payments in present value terms between completion and 2027, subject to the meeting of certain performance measures
  • To fund the initial consideration, The Co-operative Group will issue perpetual subordinated debt of £350m fully underwritten by LBG
  • The Verde business is expected to have a balance sheet as at 31 December 2013 (estimated by LBG) of around £24bn, with fully matched customer assets and liabilities, leaving no funding gap
  • It is anticipated LBG will initially provide £1.5bn of equity capital to fund Verde at completion under a standardised capital model. Under an advanced capital model and subject to regulatory approval, the equity capital to be provided by LBG is expected to be in the range of £1.1bn to £1.4bn
  • LBG will also provide access to around £500m of Tier 2 capital
  • The Verde business is estimated to have around £11bn of risk weighted assets on a standardised basis
  • LBG will use the TSB as the banking brand for the Verde business and will make this transition from Summer 2013, prior to completion of the proposed transaction
  • Once it becomes part of The Co-operative Banking Group, the TSB business would operate separately for a period of time ahead of integration with the existing Co-operative Banking Group business
  • The combined bank would ultimately operate on a separated version of the existing proven LBG IT platform which would be managed by LBG, for the enlarged Co-operative Banking Group, on a managed service basis, under commercial market terms
  • It is anticipated that the earliest point at which the migration of the existing Co-operative Banking systems to the LBG IT platform would begin is 2015

The heads of terms is expected to move to a full sale and purchase agreement, subject to satisfactory completion of due diligence processes and Board and regulatory approvals. However, agreement may not be reached on a definitive sale and purchase agreement or, once signed, the agreement may not become unconditional. Accordingly, there is no certainty that the proposed transaction will proceed, or that it will proceed on the terms set out in the non-binding heads of terms.

Peter Marks, Group Chief Executive of The Co-operative Group, said:

“We’re delighted to be announcing that we have reached agreement in principle with Lloyds Banking Group on the terms of this important and transformational transaction. 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.

“It would be a great deal for customers because it would make the services of our member-owned, customer-led, ethically-driven, bank available to millions of people we’ve not been able to serve up until now.

“It would be a great deal for the taxpayer because as well as receiving a fair price up front, the deal would also mean they would share in the profits of the enlarged bank for years to come.

“So far as UK banking generally is concerned, this would be a great deal because it would help restore trust in a sector whose image has been badly tarnished over recent years.

“And finally, it would be a great deal for The Co-operative Group, its 20 million customers, its seven million customer-owners and its 100,000 staff, because it would propel us into the premier league of UK banking.

“The acquisition of the Verde business would significantly advance our growth strategy, creating a combined bank approaching 7% market share of UK personal current account customers. That would allow us to really challenge the status quo on the high street.

“Despite the crisis in the financial sector, our bank has continued to go from strength to strength, coming through the financial crisis in great shape and maintaining our ethical and socially responsible credentials. Whilst we are not at the end of the road yet, we are pleased to have reached this important milestone and look forward to continuing to work with Lloyds Banking Group to reach a final agreement.”


Questions you may have

Questions you may have

What is a Heads of Terms document?

The heads of terms agreement is a non-binding agreement that outlines the broad commercial terms and what will be included in the sale. It sets out both parties’ agreement in principle to what the sale will include, and their roles and responsibilities during the sale process. The heads of terms agreement could ultimately lead to the signing of a legally binding sale and purchase agreement.

Which parts of Lloyds TSB would The Co-operative be buying?

The purchase would include all Lloyds TSB branches in Scotland, branches of Lloyds TSB in England and Wales, Cheltenham and Gloucester branches and some business accounts (known as the ‘Verde’ business). It affects 4.8 million customers, including 100,000 business banking customers of Lloyds TSB, 632 branches and 754 ATMs. The transaction is still subject to approval by both, the Lloyds and Co-operative Boards, the FSA, HM Treasury and the European Commission. Further updates will be provided as progress is made.

Is this a done deal?

Agreeing the heads of terms is a statement of intent to complete the transfer of the Verde business to The Co-operative Group. It is a key step forward in the process, but it is not legally binding. There is still a lot of work to do before a final agreement is reached, and our priority throughout our negotiations will be to achieve the best outcome for our customers and colleagues.

Why is The Co-operative buying these branches?

We have a clear strategy for driving The Co-operative Group forward. As part of that strategy, we have been working to build upon our strong foundations in banking to ensure customers have a real alternative on the high street. We are a proven and trusted bank – mutually owned, with profits shared between members and also used to invest for the long-term. We think a combination of the Verde business with our own would significantly strengthen our position as a real challenger in relationship banking in the UK.

Will this deal affect my products and services?

As the transaction is still subject to approval by both, the Lloyds and Co-operative Boards, the FSA, HM Treasury and the European Commission, there will be no immediate change for customers. We will make an announcement on the final outcome and what it means for you at the appropriate time

When will the sale complete?

The sale is expected to complete by the end of 2013, subject to, among other things, regulatory and Board approvals.

I have savings in a Lloyds account and also a Co-operative Bank account. If your talks with Lloyds are successful, would my money be covered under the Financial Services Compensation Scheme (FSCS)?

Yes, Lloyds Banking Group and The Co-operative Banking Group are both separate members of the Financial Services Compensation Scheme (FSCS) and have separate limits in the unlikely event that either business becomes insolvent.

The limits will remain separate for the foreseeable future. In terms of what happens in the longer term, it is too early to confirm any details at this stage. If our talks with Lloyds are successful, this is something that we will discuss with the Financial Services Authority (FSA) in order to achieve the best possible outcome for customers. In any event, both the Co-operative Banking Group and Lloyds Banking Group will work together to ensure all customers are properly informed with and understand what impact, if any, this deal would have on them and their money.