When the sale of 632 UK branches of Lloyds TSB to the Co-op Bank was trumpeted last year, advocates of greater choice in the high street banking sector gave an audible ‘hurrah’.
The Co-op already had a decent presence in the marketplace, but the addition of a few hundred Lloyds branches had the potential to give the bank serious clout, and a credible platform to take on the UK’s larger banking institutions.
But just a few months later the transaction has fallen through, with the Co-op blaming the “continued economic downturn” and the “tougher regulatory environment imposed on banks” for its abandonment of the acquisition. The departure in February of the Co-op Bank's influential chief finance officer, James Mack, certainly didn't help matters either.
The 632 Lloyds branches in question will now be re-branded ‘TSB Bank’, and will operate as a separate business within Lloyds group ahead of a sale to another party.
The deal - given the Bond-like codename of ‘Project Verde’ - was considered to be quite the coup for the Co-op, given that the Lloyds branches were going for the bargain basement price of £750m for the lot. It was so cheap – in relative terms – because Lloyds is 39% taxpayer owned, and the European Competition Commission demanded a sell-off.
However, reports emerged earlier this year that the Co-op group was having difficulty in finding ways to pay for the takeover of the branches, which would have virtually doubled its size.
Executive director of consumer group Which?, Richard Lloyd said: “This is very bad news for everyone wanting to see more competition in retail banking anytime soon.
“The Co-op’s decision is a setback to the government’s efforts to tackle the unhealthy dominance of our biggest banks. This would have given more choice to consumers who are sick and tired of shoddy service and unfair fees, and would have put more pressure on the big banks to work for customers, not bankers.”
The Co-op’s proposed takeover of hundreds of Lloyds branches came during a time of growing optimism about a UK banking shake-up. Virgin Money had acquired state-owned Northern Rock, while Dave Fishwick - a self-made Lancashire entrepreneur turned DIY banker - brought his struggle to take on the financial establishment to the masses on Channel 4’s Bank of Dave.
Co-op’s acquisition of Lloyd’s may have dampened expectations for now, but there is still reason to hope – this month, the Post Office announced the lauch of its own current account.
Which?’s Richard Lloyd said: “More competition is desperately needed to force banks to genuinely compete for customers. But switching banks must also be made much easier and people will need to see real benefits from new providers to encourage them to move.”