Of Special Interest


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30th September 2011

NBNK only bidder to meet deadline for Lloyds branches

NBNK confirmed on Thursday that it had made a bid for the branches and assets that are being sold by Lloyds Banking Group. It made no other comment. It is thought to have been the only bidder that placed a bid by the deadline of the 28th September. Bank borrowing rates have increased significantly in recent weeks due to global concerns arising from the sovereign debt crisis and this is believed to be the reason for the other interested organisations not bidding. NBNK is thought to have bid £1.5bn (€1.7bn $2.3bn ¥179bn Y15.0bn) for the Lloyds Banking branches for sale. Earlier this year Lloyds Banking were understood to be expecting a sum over £2bn for the branches and mentioned the possibility if an IPO if the bids did not reach an adequate level. Linked to the higher borrowing costs is also the reason NBNK is said not to be interested in the additional mortgages and loans that Lloyds Banking was offering over and above that set by the European Commission requirements.

Lloyds Banking was given until the end of 2013 to sell the assets by the EU so could in theory wait until better market conditions. However waiting has a number of downsides and is unlikely to have the support of its chief shareholder - the government. Leaving the businesses to be sold in limbo is only likely to lead to further decreases in their market value and lead to the desertion of key executives and managers. There is also the risk that valuations could get worse.

It is unclear whether others who showed interest may still may a late bid, there are some hints that Lloyds is keeping the door open for a short while at least. Co-operative Financial Services was one of the others and in theory could raise the required money from the co-operative movement and other services through debt. The organisation struggles to make any profit (£2.6m net profit in the first half) and therefore its credibility in repaying debt may be in question and also its ability to manage such a large business. The third organisation to show interest in bidding was Sun Capital, a US finance house with no expertise in retail banking. NBNK and Sun Capital are known to have held independent talks with National Australia Bank with regard to acquiring / merging with NAB's UK subsidiaries - Yorkshire and Clydesdale Banks to mould a significant sixth force in retail banking. The Yorkshire Post newspaper quotes a NAB spokesman as confirming that talks had ended with Sun Capital without any deal. The newspaper also quotes Mark Joiner, NAB's executive director for finance as saying that there will be no 'fire sale' and reminds that the UK banks are profitable. It remains unclear whether there are active discussions between NAB and NBNK.

Lloyds Banking share price was standing at under 37p on Wednesday, less than half of its 52 week high with most of the fall occurring in the last three months. The option of an IPO this year would seem impossible also.