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* UK lawmakers to quiz Osborne about Co-op on April 3
* Finance ministry says branch sale purely commercial (Adds finance ministry reaction, background)
By Huw Jones
LONDON, March 27 (Reuters) - Britain's parliamentarytreasury committee has asked finance minister George Osbornewhether he or colleagues put undue pressure on Co-operativeGroup or Lloyds Banking Group over the sale ofmore than 600 Lloyds branches.
Paul Flowers, the former chairman of Co-op Bank, whichnearly collapsed under massive debts last year, said this weekthat Osborne had pressured it to buy the branches from partiallystate-owned Lloyds, while Peter Levene, chair of rival bidderNBNK, has repeatedly alleged that political interferenceresulted in the Co-op Bank being named as the preferred bidder.
The treasury committee, chaired by Andrew Tyrie, isexamining how Lloyds divested 632 branches upon the request ofEuropean Union regulators following its rescue by taxpayersduring the financial crisis.
"A variety of views have been presented in evidence to thecommittee regarding the alleged extent of political involvementin this divestment process," Tyrie wrote to Osborne in a letterdated March 26 and made public on Thursday.
"Did Treasury Ministers or any Treasury officials at anytime bring undue pressure to bear on the Co-operative Bank orGroup, or Lloyds Banking Group, in respect of the sale of theVerde branches?"
Tyrie said the committee would ask Osborne about the matterwhen it interviews him about his recent Budget on April 3 and inthe meantime had asked for a preliminary reply by Tuesday April1 at the latest.
The committee also wants to know what contacts ministers andtheir officials had with regulators and UKFI, the body thatmanages Britain's stakes in Lloyds and RBS, regardingthe bidding process.
A spokesman for Britain's finance ministry said that sincethe full extent of the situation at Co-op Bank became clear,George Osborne had ordered an independent investigation into theevents at the Co-op Bank and the circumstances surrounding them.
"The selection of the Co-op and the decision on whether toproceed with the ... deal was a purely commercial matter forLloyds Bank and the Co-op Bank, as the chairman and chiefexecutive of Lloyds have consistently made clear. In the event,Co-op withdrew from the transaction," the spokesman said.
Flowers previously told the treasury committee last Novemberthere had been no interference or undue political pressureduring the process.
The Lloyds branches in question have been rebranded underthe TSB banner and will be floated as a standalone bank laterthis year.
(Reporting by Huw Jones; Editing by Sophie Walker)
