The sale, which has been ordered by European regulators following Lloyd’s
taxpayer rescue in late 2008, will create Britain’s seventh-biggest bank.

NBNK lost out to the Co-op in the initial race to buy the branches last year
but had been considering an offer to reopen the sale process after
regulatory problems forced Lloyds to push back its deadline to agree final
terms of the deal with the Co-op.

The Financial Services Authority (FSA) is concerned about the ability of the
Co-op to manage the business and is pushing the mutual to restructure its
board and put in place managers capable of running a large and complex
financial services business.

In particular, the FSA is concerned that the Co-op has yet to find a
replacement for the former chief executive of its banking arm, Neville
Richardson.

Gary Hoffman, the chief executive of NBNK and a former boss of Northern Rock,
has been reported as planning an approach that could value the demerged
business at £1.5bn.

NBNK said it had kept constructive dialogue with FSA and is confident its can
meet the regulatory criteria on the sale.

The branches must be sold or listed by November of next year as part of the
agreement with the European Commission.

Lloyds said it would also work towards an initial public offering for Verde.