The Co-operative Group’s acquisition of Lloyds Banking Group’s 632 branches was thrown into doubt last week, after it revealed the deal may not go ahead.
In its annual results the group says that although acquiring the branches would strengthen its UK banking arm, its bid is non-binding and will only proceed if it can reach an agreement that is in the interests of its members and other stakeholders.
Peter Marks, chief executive of The Co-operative Group, told the BBC: “There are economic and regulatory issues we have to address. We will complete our analysis within the next few weeks and then tell the world whether we can do it.”
It is believed the group is looking to revamp its board because the Financial Services Authority has concerns about whether the board could handle the acquisition.
Alex Griffiths, senior director of Fitch Wire, part of Fitch Ratings, says that the acquisition comes with considerable risks.
He says: “The first uncertainties are acquisition costs and the size of any funding gap between acquired assets and liabilities.
“We understand that management does not want to weaken the group’s capitalisation or funding position. But given the prize at stake, this remains a risk.”
The Co-operative group reported a pre-tax profit of £373m for 2011, down from £396m in 2010. And The Co-operative Bank reported a pre-tax profit of £54.2m for 2011, after deducting significant items of £143.3m.
The bank’s intermediary lender, Platform, advanced £600m of mortgages in 2011, the same as 2010.