Lloyds (LON:LLOY) may have to spin off the 630 branches it has been ordered to sell by the EU after announcing a delay to an agreement to sell the assets to The Co-operative Group.
The branches – known as the Verde business – were put up for sale on orders from the European Commission. Back in December, Lloyds said it would hammer out a deal to sell the assets to The Co-operative group.
It was expected that the branches would be sold for around £1.5 billion.
Lloyds aimed to seal the deal before the end of the month, but it said that it is still in discussions with Co-op and expected to update the markets in the second quarter.
“We continue to progress discussions with the Co-operative Group. However, given that this is a substantial business and a highly complex transaction the group now anticipates providing a further update in the second quarter of 2012,” said Lloyds.
It was reported that the Financial Services Authority (FSA) is looking into Co-op’s ability to fund the purchase and the subsequent integration of the branches.
If the deal does indeed collapse, Lloyds will most likely spin off the branches as an independent business through an initial public offering (IPO).
The bank said completing the sale to Co-Op remained its preference, adding that it is on track to complete the divestment by the end of 2013, in line with the EC mandated timescale.
Shore Capital analyst Gary Greenwood noted that Lloyds has decided to add operational sites to the Verde business and create 500 new jobs on top of the 1,400 staff it has already transferred to Verde.
This, said the analyst, indicated that Verde was being set up to be a standalone business, as opposed to being part of another bank.
Taking this route, said Greenwood, will be costlier for the bank.
We continue to view the disposal of project Verde as being a key challenge for Lloyds and one that has the potential to be an ongoing source of disappointing news,” said Greenwood, while repeating his ‘hold’ recommendation on the stock.