Taxpayers lose out in great Lloyds sell- off

Co-op buys 600 branches for £1bn less than bank was offered last year

‘Dick Turpin would have been proud’

LLOYDS agreed to sell hundreds of branches to the Co- op for a rock- bottom price yesterday, prompting fears that taxpayers will end up short- changed from their bail-out of the bank. Banking sources questioned why Lloyds accepted the bid, which could be for as little as £350million, when it had a rival offer for around £1.7billion last year, with one City veteran calling it ‘daylight robbery’.

Lloyds is also giving the Co-op £1.5billion in capital as part of the extraordinary deal, meaning that it could end up taking a loss of more than £1billion from it.

The 632 branches gained by the Co-op come with 4.8million Lloyds customers, 8,000 of its staff, £24billion of mortgages and 3.1million current accounts.

Lloyds was forced into offloading the branches by European state aid rules, after it accepted a £20billion bail- out from the taxpayer at the height of the global financial crisis that left it 40 per cent state-owned.

In light of the state support, its share of almost a third of the UK mortgage and current account markets was seen as unfair, and Lloyds was told to reduce it.

Yet the sale for such a low price raises questions about taxpayers’ chances of getting back their investment.

The only other sale so far of a bailed-out bank – the recent sale of the ‘good’ part of Northern Rock to Virgin Money – lost the taxpayer ‘between £175million to £289million’, according to spending watchdog the National Audit Office.

David Buik, a City veteran and strategist at the spreading betting firm Cantor Index, said of the Lloyds deal: ‘This is an absolute knock-down price.

‘In fact, it’s robbing the shareholders and the taxpayer blind. Frankly, this is daylight robbery.’

Co-op could pay an additional £400million on top of the initial £350million, but only if financial performance targets are met. Even if they are, the full amount will not be paid until 2027.

But that does not take into account the £1.5billion of capital Lloyds included with the sale, which leaves it with a net loss of up to £1.15billion.

Rival bidders, such as NBNK, led by former Northern Rock boss Gary Hoffman, are understood previously to have offered £1.7billion but it is thought the Co- op was seen as a more stable, experienced purchaser.

The Coalition has also promised to ‘promote mutuals’ such as the Co-op, which could explain why its offer was chosen.

Yesterday Peter Marks, group chief executive of The Co-op, based in Manchester, said: ‘Yes it’s a good deal. That’s what I’m paid to do.’

The purchase is not expected to lead to major job losses at the Lloyds branches. But for customers, many questions remain unanswered about the long-term impact on their current accounts, savings and loans.

The sale, which still needs to be approved by the City regulator, the Treasury and the European Commission, should be completed ‘before the end of November 2013’.

Lloyds – under chief executive Antonio Horta-Osorio – will be left with 2,243 branches, while the Co-op will have 1,000 branches, 11.3million customers and around 7 per cent of the current account market.

Sarah Brooks, of Consumer Focus said: ‘The Co-op must use its new challenger status to provide a real alternative to other banks with a focus on straightforward products and excellent customer service. Co-op must offer a point of difference and not just more of the same offered by the big five banks.’ b.barrow@dailymail.co.uk