Co-op pulls out of deal to buy Lloyds branches

The UK's Co-operative Group has given up plans to emerge as a major challenger in high street banking by abandoning plans to acquire 632 branches from Lloyds Banking Group, dealing a blow to the government's ambitions to bolster competition among big banks.

After conducting discussions for over a year, the biggest mutual in the country admitted today that it could not go ahead with the deal that would have created a 974-strong branch network – three times its current size – and a huge increase in its share of current accounts to 7 per cent.

There had been much behind the scenes activity from the government side in a bid to facilitate a transaction with the co-op that could have added to competition on the high street still dominated by the "big four" of Lloyds, Royal Bank of Scotland, HSBC and Barclays.

According to Richard Lloyd, executive director of the consumer body Which?, it was a "setback" for the government's attempt to "tackle the unhealthy dominance of our biggest banks".

The branches, which were being sold off by Lloyds under the codename Verde, would need to be sold off by November under instructions from European regulators due to the £20 billion of taxpayer funds ploughed into the lender during the financial crisis.

According to a treasury spokesman, failure of the talks was a "commercial matter". He said the government remained determined to promote greater competition in the banking sector in order to provide consumers with more choice.

Meanwhile, a report by Money Mail said it has been revealed that Lloyds TSB had raked in over £147 million by selling complicated investments to savers.

According to internal documents, which Money Mail claims to have seen, UK's biggest bank sold a staggering 255,420 so-called structured products between 2006 and end-2011.

However, payouts on products that had matured recently had been pathetic and many were mis-sold by branch advisers.

For over five years, Lloyds salesmen ploughed £2.95 billion of savers' cash into the monstrously complicated funds linked to the stock market.

With each sale the bank collected between 5 per cent and 8 per cent in charges upfront, a total of at least £147.5 million.

These were not commissions that went directly into the pockets of salesmen, but were in the nature of pay-offs from the company offering the investments to the bank selling them.

However, since the firm behind these investments was Scottish Widows, a sister company of Lloyds, it meant the fees collected from savers simply stayed in the business.