Financial News

  • 4 December 2013, 12:11

Rival Lloyds Branch Bidder Urged To Sue Bank

The bidder which lost out to the Co-operative Group in the auction of 632 Lloyds Banking Group branches is being urged to consider legal action to recover the £30m it spent on its bid.

Sky News has learnt that a number of shareholders in NBNK Investments, which is listed on the stock market, are encouraging the acquisition vehicle's directors to consider suing to recover tens of millions of pounds in costs.

The NBNK board, which is now chaired by the veteran US investor Wilbur Ross, has not yet made a decision to take such action and it is unclear whether a lawsuit would be targeted at Lloyds or the Government, insiders said.

Investors including Crystal Amber, which owns just over 3% of NBNK, are keen for its directors to consider the move amid the growing political controversy about the regulation of the Co-op's banking operations.

NBNK spent roughly £30m of the £50m it raised from City institutions to assemble a bid for the Lloyds branch network, which was given the codename Project Verde.

However, its offer was trumped on two separate occasions by the Co-op, which was subsequently forced to abandon the deal when it became clear that its finances were not in an adequate state to mount such a significant takeover.

None of NBNK's shareholders, including Crystal Amber, would comment on a prospective legal action against Lloyds or the Government.

However, they are understood to have been galvanised by intensifying allegations in recent weeks that the outcome of the branches auction was influenced by a desire from the Treasury to see a mutually-owned organisation emerge as a more powerful player in Britain's high street banking sector.

"This was not a level playing field. That has become clear," said one NBNK investor. "NBNK has paid £30m to compete in an auction it had no chance of winning."

The chances of a successful legal action are unclear, since NBNK would have to demonstrate a form of misrepresentation by Lloyds, its advisers or the Government.

"Whilst the legal test is a substantial one, it was always felt that the Verde process was heavily geared towards the Co-op's success," another investor said.

"The telling factor may come out of numerous Freedom of Information Act requests which have been submitted to various Government departments."

Sky News revealed last month that Lord King, the then Governor of the Bank of England, had told Lord Levene, who at the time was NBNK's chairman, that he believed the Co-op's bid had won political favour.

In a statement, a Lloyds spokesman said: "The bidding process for the Verde business was assessed on a fair and open basis.

"The Lloyds board made the decision to proceed with the Co-op based on value and certainty.

"They chose to proceed with a business that had an existing franchise, branch network and a banking licence.

"The Group also maintained a Plan B - an IPO†(initial public offering) of Verde. The first phase of that completed in September with TSB on the UK high streets."

The TSB network is likely to float on the stock market in the middle of next year, with former RSA Insurance boss Andy Haste poised to be appointed as its chairman.

A Treasury Select Committee inquiry into the Verde sale process is hearing further evidence on Tuesday from advisers from KPMG, the accountancy firm, and JP Morgan, the investment bank.

In evidence provided to the Committee earlier this year, NBNK said it had warned Lloyds that it believed the Co-op was in a worse financial position than had been publicly acknowledged and that the mutual would be forced to withdraw.

In a letter to the Financial Times this week, John Aitken, an adviser to NBNK, said "the result for both the Co-op and NBNK (whose investors could reasonably have expected an unbiased process) has ensured we have gone backwards".

"This dire result has been achieved by a combination of ineptitude and political interference and, rather than congratulating themselves, those responsible should be deeply ashamed," he added.

Senior City sources believe that one of the motivations for favouring a Co-op deal† was that the well-capitalised Verde network would help to ease the mutual's difficulties over IT systems, management inexperience and doubts about the robustness of its capital position.

A series of probes now awaits the Co-op and some of its former directors, with the Financial Conduct Authority and Prudential Regulation Authority considering whether to launch formal enforcement investigations.

A separate probe commissioned by the Treasury and undertaken by an as-yet unidentified figure from the world of banking or law will also take place.

In a statement last month, it said its inquiry would "cover the actions of relevant authorities (regulators and government) and the institution itself, including prudential issues, governance (including the appointment of senior staff) and acquisitions".

The Treasury's inquiry will not begin until after any PRA and FCA enforcement action has been concluded.

Following the termination of its interest in the Lloyds branches, Lord Levene and other NBNK directors stepped down from the board, with Mr Ross investing in the cash shell last December.

NBNK has not yet pursued any alternative acquisitions.