Co-op 'favoured by government' over Lloyds branches deal

The government has been been accused of favouring Co-op Bank in the doomed sale of part of Lloyds TSB.

Lord Levene, who headed up a rival bid to buy the branches, says he was told a political decision was made to back the Co-op's bid, which it was eventually forced to withdraw.

He told the BBC that Lord King, the former head of the Bank of England, told him as much.

Lloyds has denied that it was put under any political pressure.

Lloyds had planned to sell 632 Lloyds Bank branches in a process known as Project Verde, and Co-op announced plans to bid for the branches in 2011.

Co-op Bank withdrew its offer for the branches in April, blaming the "economic environment" and "increasing regulatory requirements on the financial services sector". It was later found to have a capital shortfall of £1.5bn.

MPs are investigating why the deal between Co-op and Lloyds to buy the branches finally collapsed.

'Political decision'

Lord Levene was previously the chairman of the insurance market Lloyds of London before setting up his own bank, NBNK, which had hoped to buy 632 Lloyds TSB branches in order to establish itself in the UK market.

"Lord King advised me that we would not be the winners in this bid because a political decision had been made to favour the Co-op, and that the only way, at the 11th hour, that we could do this would be to talk directly to the politicians about this. Which we did. And they told us it wasn't true," he told BBC business correspondent Joe Lynam.

Lord Levene said he warned the government that the Co-op's bid wasn't "credible", adding: "you've only got to look at what has happened".

Lloyds said the sale of the branches was a commercial matter for regulators and the companies involved.

In September, the former chief executive of Co-op Bank told MPs he repeatedly warned the Co-op Group board against a bid to buy more than 600 Lloyds bank branches and said he resigned over the matter.

Chancellor George Osborne recently announced that an independent inquiry is to look into "events at the Co-op Bank" dating back to 2008.

This follows the arrest of the bank's ex-chairman, Paul Flowers, in connection with a "drugs supply investigation", which came after Mr Flowers was forced out of the Co-op's banking arm in June because of doubts about his competence for the job.