Financial News

  • 11 March 2014, 13:24

Secret Lloyds Papers To Be Published By MPs

A powerful panel of MPs is to publish secret papers revealing deliberations by directors of Lloyds Banking Group over the fate of more than 630 of the taxpayer-backed lender's branches.

Sky News has learnt that the Treasury Select Committee has in recent days been sent board papers relating to the sale of Lloyds' 'Verde' network.

The branches, which were to be sold to the Co-operative Group until a 1.5bn hole emerged in the mutually-owned lender's finances last year, have now been rebranded as TSB, creating the UK's seventh-biggest bank.

A 1.5bn flotation of TSB plc on the London Stock Exchange is planned for the summer.

The request for the board papers was made nearly nine months after the MPs began their inquiry into the Verde auction, which has triggered allegations of Government interference and regulatory ineptitude.

Redacted versions of the minutes could be published as soon as the end of this week, an insider said.

The documents are understood to relate to decisions announced in December 2011 and July 2012 to sell the 632 Lloyds branches to the Co-op despite claims from NBNK Investments, a rival bidder, that it had made a superior offer.

An insider who has seen the board papers said on Monday that they show the Co-op and NBNK bids being assessed against four criteria: price and commercial terms; customer and employee attrition risk; execution risk; and regulatory risk.

The source said that on the earlier occasion, in December 2011, the NBNK bid was deemed to be marginally superior on price but inferior on the risk of customer attrition and execution risk because the Co-op was already an operating bank with a licence.

The rivals were judged to be "broadly even" on the issue of regulatory risk, the source added.

In December 2011, Lloyds awarded exclusivity to the Co-op but reopened the process several months later amid doubts about the Co-op's ability to complete the Verde takeover.

However, the Co-op was then judged to be ahead on all four criteria in July 2012, having raised its offer for the branches.

The board of NBNK, which has argued that its offer would have provided better value for Lloyds, is expected to review the Lloyds documents with a view to taking legal action against the bank.

A number of NBNK investors told Sky News in December that they wanted it to sue Lloyds in an attempt to recover the 30m it spent during the bidding process.

Sources indicated that NBNK could also seek to claim for potential losses it would argue that it had suffered as a consequence of not winning the auction.

Another insider said suggestions that Lloyds' financial advisers, Citi and JP Morgan, had recommended pursuing the NBNK deal ahead of the Co-op, were inaccurate.

Accusations of political interference have dogged ministers since the Co-op deal collapsed, following the inclusion in the 2010 Coalition agreement to promote mutuality as an ownership model.

Lord King, who stepped down as Governor of the Bank of England last year, told Lord Levene, NBNK's chairman, that the Co-op's bid had won political favour in Whitehall that would be difficult to overturn.

George Osborne, the Chancellor, and Lloyds directors including Sir Win Bischoff, its outgoing chairman, have consistently denied any attempt by ministers to influence the outcome of the auction.

Lord Levene and Sir Win have publicly clashed over a document prepared by NBNK which warned of the fragility of the Co-op's finances.

The Lloyds chairman has said that he does not recall receiving it, a claim ridiculed by Lord Levene in an interview with Sky News in December.

"What I did was... [to] take that report and give it to the chairman of Lloyds Bank who I knew very well and say to him, 'Look...I really think before you press the button on this you ought to read this report for yourself because I think you will see from this that the Co-op is not going to be the answer for you. Subsequently the Chairman... denied that he had ever seen that piece of paper."

Lloyds and the Treasury Select Committee both declined to comment.