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By Steve Slater
LONDON, March 14 (Reuters) - Lloyds Banking Group codenamed Co-op Bank as "Ferrari" during its talks to sell itmore than 600 branches, before the mutual's bid came to asputtering halt last year, the bank's minutes showed.
Lloyds said it chose to sell the branches to Co-op, ratherthan a rival bid from NBNK codenamed "Lotus", becauseexecution risks were lower for the Co-op and it would have beenmore attractive for staff and customers.
"While it was difficult to assess which buyer would be moreacceptable to customers, Ferrari (Co-op) was a well known,ethical, brand that had weathered the financial crisis well,"minutes from a Lloyds board meeting in December 2011 said.
Co-op Bank has since been rocked by a series of scandals,including a 1.5 billion pound ($2.5 billion) capital hole and adrugs scandal involving its former ex-chairman.
Lloyds' board meeting minutes were released on Friday by UKlawmakers studying the proposed sale of 632 of its branches toCo-op, which was agreed in 2012 but collapsed in April 2013 whenCo-op was found to have a capital hole.
The minutes showed Lloyds was confident Co-op would be ableto buy the branches until concerns surfaced in early 2013, eventhough Britain's financial regulator has said it warned theCo-op in 2011 that it needed to raise capital and was not in aposition to buy the Lloyds branches.
The Bank of England has said it believed Co-op had passed onconcerns about the capital position to Lloyds, although Lloydsexecutives have said they did not realise there was a problemwith Co-op's capital strength until December 2012.
The June 2012 minutes for the Lloyds board meeting said: "Itwas understood that, although discussions were not yet complete,the FSA (Financial Services Authority) did not have any fatalconcerns about the Co-op's interest in acquiring the Verde(branches) business."
At the January meeting, the board said it still expected thedeal to be signed in March 2013.
On April 18, the board said the sale to Co-op was now "aless likely outcome than in the past. Progress was slow." Thedeal collapsed a week later.
The decision by Lloyds to sell the branches to Co-op hasprompted allegations that politicians had encouraged thedecision, keen to back customer-owned financial servicesbusinesses, such as Co-op.
The Lloyds board minutes said the NBNK offer was potentiallymarginally more valuable to Lloyds, but the cost of deliverywould be higher. It said Co-op was already a fully functioningbank, although it said Co-op recognised if it bought the Lloydsbranches "it would need to upskill significantly."
Lloyds has since separated the branches and rebranded themas TSB, and intends to float them later this year.
