Lloyds will now enter exclusive talks with the Co-op after competition from NBNK.
The news comes as Lloyds announced its group chief executive António Horta-Osório would return to work from sick leave on 9 January. Horta-Osório took a temporary leave from his duties due to stress-related illnesses.
The sale will include an estimated 4.6% of the UK current account market, 632 retail branches and £36bn of deposits and about £47bn of mortgages and loans. All Cheltenham & Gloucester branches and all Lloyds TSB Scotland branches are earmarked to be sold. In addition, a selection of Lloyds TSB branches in England and Wales would be transferred to the Co-op.
The acquisition of the branches would give the Co-op the chance to become Britain’s seventh-biggest bank.
It is hoped that the deal will be concluded by the end of the first quarter of 2012.
Lloyds is being forced to sell the branches by European Commission competition authorities.
Peter Marks, group chief executive of the Co-op Group, said: “We think a combination of these branches and our own would significantly strengthen our position as a real challenger in relationship banking in the UK.
“Clearly our bid for the assets is non-binding and we would only proceed if we could reach an agreement that was in the interests of our members and other stakeholders.
“At the same time, acquisition is not the only route we have for growing this business.
“Our bank has continued to go from strength to strength following the merger with Britannia and we are pushing further through initiatives such as our in-store banking programme.”
Adrian Coles, director general of the Building Societies Association, said: “The BSA welcomes this expansion of the mutual sector in the banking market. Quoted banks often put the interests of shareholders above those of customers.
“All of our research shows that mutuals offer a better customer service; this change will markedly increase the number of branches in the high street that are more interested in customer service than shareholder return.”
Peter Vicary-Smith, Which? chief executive, said: “If people are to get a better deal from their banks we need greater competition, which means an effective challenger on the high street. People tell us they like the Co-operative bank and we think they can teach the other banks a lesson in good customer service.
"However, even after the branch sale, Lloyds will still be left with a dominant position in major retail banking markets and is likely to use its market power to increase prices for consumers. If Lloyds will not agree to enhance the size of its divestment, then an early reference to the Competition Commission may be the only way of securing further improvements.”
