Crunch time for Co-op in Lloyds negotiations

The Co-operative Society is reportedly set to make a decision this week on whether it should press on with its tortuous negotiations with Lloyds Banking Group over the acquisition of 632 branches from the part-nationalised lender.

The Financial Services Authority (FSA) has put a road block on progress towards the deal, newspaper reports say, by insisting that the Co-op holds an additional £3bn of capital at group level. In effect, the FSA would be given supervisory powers over the whole of the mutual society, not just the banking arm; as well as banking services the Co-op offers insurance, legal services and funeral care, plus it owns a number of supermarkets, travel agents, electricals stores and pharmacies.

With NBNK, the banking start-up headed by former Northern Rock chief executive Gary Hoffman, having submitted a revised £2bn bid for the branches - around £0.5bn more than the Co-op is said to be offering - this week might be a convenient time for the mutual society to bow out of negotiations, but for now it is the only interested party with which Lloyds is negotiating. The exclusivity deal between the two was extended at the end of March.

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Lloyds has to sell the branches in order to comply with a European Commission order related to monopolies concerns over Lloyds' disastrous merger with HBOS. Lloyds has until November 2013 to complete the sale.