Co-op ‘can raise cash’ in Lloyds bid

THE Co‑op Group has privately dismissed fears that it will struggle to raise finance in troubled debt markets in its attempt to acquire the 600‑plus Lloyds Bank branches and other assets on the auction block.

Sources say the group, which is handling the bid approach for its Co‑operative Financial Services arm, has told Lloyds’ chief executive Antonio Horta‑Osorio that it has a strong record of raising an acquisition war chest in volatile times.

The mutual raised £2.5 billion in the debt markets at the time of the bank sector implosion in 2008 to fund its acquisition of the Somerfield food retailing business. In addition, the group pulled off the nil-premium merger with Britannia Building Society in 2009 to double its size.

As such, the Co‑op believes it can allay concerns that it has less financial firepower for a deal than its two rival suitors, banking consolidation vehicle NBNK and financial investment firm Sun Capital.

NBNK is the only one of the three potential acquirers to have submitted an offer, believed to be about £1.5bn. NBNK has a number of big City institutional investors bankrolling its bid. They include Invesco Asset Management, Aviva Investors, Baillie Gifford, F&C Asset Management, JP Morgan and UBS.

Sun Capital, the other suitor, has on board company turnaround specialist Hugh Osmond, who has raised major finance in the past for deals in the pubs and retail industry.

However, one City analyst said yesterday: “The Somerfield deal shows that worries about the Co‑op financing a move on Lloyds is a red herring. They’ve shown they can get the money for a transformational deal, even though it is a mutual.

“Also, whether the Co-op eventually decides to submit a bid or not, you can’t get around the fact that they are the only one of the three bidders to have an established banking network on the ground. They are a proven entity, not an aspirational one.”

Following its acquisition of the Britannia, Co‑operative Financial Services has a 2 to 3 per cent share of the high-street banking market. That deal created a financial group with £70bn of assets and 340 branches.