Sun Capital Vies for Lloyds Branches

Sun Capital Partners, NBNK Investments and The Co-Operative Group‘s banking arm are vying for 630 Lloyds branches in a deal that could fetch as much as 2.5 billion pounds ($4.1 billion), Reuters reported. European regulators are forcing Lloyds to sell the branches as payback for having accepted a government bailout during the credit crisis, Reuters wrote. Following the government bailout, Britain ended up with a roughly 40% stake in Lloyds.

(Reuters) – Lloyds has entered the three companies that submitted initial bids for 630 branches into the second round of the sales process, sources with knowledge of the matter told Reuters.

NBNK Investments , Sun Capital Partners and The Co-Operative Group’s banking arm are competing for the branches which analysts say could fetch about 2.5 billion pounds ($4.1 billion).

“All the bidders have gone through,” one of the sources said.

European regulators have forced Lloyds to sell the branches as payback for having accepted a British government bailout during the credit crisis.

Britain ended up with a 40.6 percent stake in Lloyds and 83 percent of Royal Bank of Scotland after a similar bailout, and selling the branches would mark an important initial first step towards disposing of its Lloyds holding.

The sources added that Lloyds was also considering easing the capital burden for prospective buyers, to facilitate the sale process.

“The information memorandum, when it came out, said Lloyds would work with the regulatory body on risk weightings,” said a source.

A Lloyds spokeswoman said: “The process is still moving ahead. We’re still looking to find a buyer by the end of the year.”

FUNDING GAP CONCERN

For new banking vehicle NBNK, the Lloyds branches would form part of its plans to challenge the monopoly of Britain’s “Big Four” banks – RBS, Lloyds, HSBC and Barclays .

Mutually-owned Co-Operative Group has been looking to build up its banking franchise, while investment group Sun Capital Partners has hired former Lloyds executive Mike Fairey to strengthen its unit.

However, one obstacle remains the need to plug a funding gap for the assets on sale.

The portfolio includes assets of 64 billion pounds and liabilities of 32 billion.

At a loan-to-deposit ratio of 130 percent, which Lloyds and other banks are striving to get below, that could leave a funding gap of up to 22 billion pounds.

Lloyds has said that a fallback option would be to spin off or float the branches if it fails to pull off a sale, but the current stock market uncertainty makes a sale its preferred option. ($1 = 0.603 British Pounds) (Additional reporting by Stephen Mangan; Editing by Erica Billingham)