Lloyds to sell Spanish retail banking business to Banco Sabadell

UK state-backed lender Lloyds plans sell its Spanish retail banking business to Banco Sabadell against  an approximate 1.8-per cent stake in the Spanish lender and in the process take a £250-million loss on the disposal.

The bank expects to receive the stake, worth €84 million, in Spain's fifth largest bank in exchange for its private and retail banking business in Spain, which had total assets of £1.52 billion pounds including 28 offices, as also its local investment management business.

The assets consist mainly of retail mortgages and deposits. Lloyds said a large proportion of the business comprised non-resident clients.

Lloyds  will retain hold over its Spanish corporate banking operations after the transaction.

Lloyds, which planned to off-load hundreds of UK bank branches in a proposed deal with Co-op, which did not materialise, said it planned to be "a supportive shareholder" of Sabadell and would retain the shares for at least two years.

On completion of the transaction, it would get 53.7 million shares from the the Spanish lender's treasury holding, Lloyds said.

Also Sabadell could pay a further £17 million over the next five years depending on mortgage book margins.

Commentators opine that in the meanwhile over 4 million Lloyds customers would probably feel they were being made to run from pillar to post.

They were initially told their bank account was likely to move to Co-op, but with the deal called off, 600-odd Lloyds branches would become a separate bank, rebranded under the old TSB name.

Lloyds has to sell around 10 per cent of its branch network, to meet European competition rules.

In the absence of other buyers, the branches would now need to fend for themselves as a separate entity.

Analysts feel the announcement might have wider ramifications, and it remained to be seen as to what would happen to Co-op Bank, which now looked like being a less significant banking force in future.

It also looked like government's attempts to increase competition in the sector had failed. The deal was supposed to improve choice and products for consumers.

Lloyds would need to sell the branches by November 2013, and said it was already in "advanced stages" of setting up a stand-alone bank. To start with, the new TSB Bank would also be part of the Lloyds group before a planned stockmarket flotation, according to industry experts.

According to Lloyds, it was trying to minimise disruption for affected customers. Customers would however, keep the same account number on their bank account as also the same sort codes.

Also all direct debits would be transferred automatically, and customers would not have to inform employers. As the account number would not change, salaries would be automatically be paid into the existing accounts.