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| Regulator told Co-op to tell Lloyds of concerns during sale talks | |
| (about 2 hours later) | |
| A financial regulator raised concerns with the Co-operative Bank about its capital strength two years ago, during talks to buy Lloyds bank branches | |
| Andrew Bailey, who at the time was a senior regulator at the Financial Services Authority, told lawmakers that he told Co-op it was their duty to pass on his concerns to Lloyds. | Andrew Bailey, who at the time was a senior regulator at the Financial Services Authority, told lawmakers that he told Co-op it was their duty to pass on his concerns to Lloyds. |
| A Co-op deal to buy 632 Lloyds branches fell through in April this year. | |
| The sale of the branches was required under European Union competition rules. | The sale of the branches was required under European Union competition rules. |
| The deal was known as Project Verde, | The deal was known as Project Verde, |
| Giving evidence in front of the Treasury Committee, Mr Bailey, now at the Bank of England, had made it clear to the Co-op that it had concerns over its capital position and told it to communicate that information to Lloyds. | Giving evidence in front of the Treasury Committee, Mr Bailey, now at the Bank of England, had made it clear to the Co-op that it had concerns over its capital position and told it to communicate that information to Lloyds. |
| "Towards the end of 2011 we made it clear to [the Co-op] that... it was not clear to us that Co-op Banking Group had the ability to transform itself successfully and sustainably into an organisation on the scale that would result from acquiring the Verde assets," he said. | "Towards the end of 2011 we made it clear to [the Co-op] that... it was not clear to us that Co-op Banking Group had the ability to transform itself successfully and sustainably into an organisation on the scale that would result from acquiring the Verde assets," he said. |
| "I was very insistent that Lloyds were told... that there was a reasonable probability that [the deal] was not going to happen." | "I was very insistent that Lloyds were told... that there was a reasonable probability that [the deal] was not going to happen." |
| He said that as early as 2011 the Co-op was told it must address a number of areas, including its capital position. | He said that as early as 2011 the Co-op was told it must address a number of areas, including its capital position. |
| Revised deal | Revised deal |
| Mr Bailey became the Bank's deputy governor for financial stability after it took over regulatory responsibility from the FSA. | Mr Bailey became the Bank's deputy governor for financial stability after it took over regulatory responsibility from the FSA. |
| Lloyds' executives told the committee last month that they did not realise there was a problem until December 2012 when they discussed a revised deal with Co-op. | Lloyds' executives told the committee last month that they did not realise there was a problem until December 2012 when they discussed a revised deal with Co-op. |
| Commenting on today's evidence session with the Financial Policy Committee, the Chairman of the Treasury Select Committee, Andrew Tyrie MP, said: "The Treasury Committee will want to look at whether the regulator's message got through, how it was conveyed and what, if any, action was taken as a result." | Commenting on today's evidence session with the Financial Policy Committee, the Chairman of the Treasury Select Committee, Andrew Tyrie MP, said: "The Treasury Committee will want to look at whether the regulator's message got through, how it was conveyed and what, if any, action was taken as a result." |
| The Co-op Bank finally withdrew its offer for the Lloyds branches in April, blaming the "economic environment" and "increasing regulatory requirements on the financial services sector". | The Co-op Bank finally withdrew its offer for the Lloyds branches in April, blaming the "economic environment" and "increasing regulatory requirements on the financial services sector". |
| It was later found to have a capital shortfall of £1.5bn. | It was later found to have a capital shortfall of £1.5bn. |
| Lloyds is now planning to dispose of the branches through a stock market listing. | Lloyds is now planning to dispose of the branches through a stock market listing. |