Lloyds' hopes of selling 632 branches have suffered a major blow after the Co-operative Bank decided to withdraw its offer.
The Co-op blamed the sustained economic downturn and the more costly environment for banks following the move to dual-regulation.
Lloyds has been required to sell off the branches by decree from the European Commission as a condition of the taxpayer-funded bailout it received during the financial crisis.
The sale of the Co-operative Bank, known as Project Verde, was agreed in 2012.
Following the breakdown of the arrangement, Lloyds said that it would attempt to sell the branches under the stand-alone TSB Bank, which will operate as a subsidiary of Lloyds from the summer.
The Co-operative Bank said that it was not in its members' best interests to complete the purchase of 632 branches from Lloyds.
The Co-op had already pledged to revamp and streamline its existing branch network as it prepares to phase out the 150-year-old Britannia brand by the end of the year (read more).
The expected takeover would have increased the bank’s share of the current account market to around 6%, which would have boosted its ability to challenge the major high-street players.
But the Co-op’s chief executive, Peter Marks, said that it was not in the best interests of its members to complete the transaction.
"Against the backdrop of the current economic environment, the worsened outlook for economic growth and the increasing regulatory requirements on the financial services sector in general, the Verde transaction would not currently deliver a suitable return for our members within a reasonable timeframe and with an acceptable level of risk," he said.
The withdrawal means that Lloyds will have to return to the European Commission in Brussels and ask for an extension to its deadline of November 2013 for a completed sale.
Keith McDonald
Which4U Editor
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