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Britain's state-rescued Lloyds Banking Group on Wednesday said a deal agreed last year to sell 632 branches at a loss to The Co-operative Group had collapsed, adding that it would now divest Project Verde via an initial public offering.
LBG "has been informed that, despite the commitment of both parties to the transaction, The Co-operative Group's board has decided that they can no longer proceed with a purchase of the Verde business given their view of 'the impact of the current economic environment, the worsened outlook for economic growth and the increasing regulatory requirements on the financial services sector in general,'" a statement said.
LBG "now intends to divest Verde through an initial public offering (IPO), having maintained this option throughout the process in order to ensure best value for our shareholders and certainty for our customers and colleagues.
"It is expected that the IPO will be subject to regulatory and EC approval, and an update on the timing of an IPO will be given in due course," the statement added.
LBG said plans were in place for a rebranding of the Verde business as TSB later this year, "at which point the TSB Bank will operate as a separate business within Lloyds Banking Group."
LBG was born out of a merger of Lloyds TSB and rival British lender HBOS in the wake of the 2008 financial crisis.
In a bid to turn around its fortunes, LBG had last July agreed to sell the 632 branches to The Co-operative Group after an EU competition ruling.
LBG, which is 39-percent owned by the British government, was ordered by the European Union to offload a sizeable chunk of its branches in exchange for a huge state bailout following the 2008 financial crisis.
At the time The Co-operative, a British financial services-to-food mutual business, claimed the deal "would mark the biggest shake-up in high street banking in a generation." The sale had been worth an initial £350 million, rising to a potential £750 million but below expectations for a total of £1.5 billion.
LBG chief executive Antonio Horta-Osorio expressed disappointment at the sale's collapse, but added: "We are well advanced in our plans to bring the Verde business to the UK High Street during the summer through the TSB Bank, and will now proceed with the option to IPO the business, subject to the necessary approvals."
Peter Marks, chief executive of The Co-operative Group, said: "After detailed and thorough consideration of all aspects of the Verde transaction, we have decided, at this time, that it is not in the best interests of our members to proceed with the transaction.
"Having worked closely and constructively with Lloyds we are naturally disappointed to have reached this conclusion.
"However, 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 added in a separate statement.