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* Levene says considerable pressure applied to Lloyds
* Says Ex-BoE Governor King told him decision political
* Lloyds has denied political interference
* Lloyds says in 'good talks' with EU over TSB listing
By Matt Scuffham
LONDON, Jan 21 (Reuters) - The ex-chairman of bankingstart-up NBNK said he was told by former Bank of EnglandGovernor Mervyn King that state-backedLloyds Banking Group's decision to sell hundreds ofbranches to the Co-op was politically motivated.
Peter Levene told parliament's Treasury Select Committeethat King had informed him that NBNK's offer would not beaccepted at a meeting in May 2012 - a month before Co-op wasidentified by Lloyds as preferred bidder.
"I was told by the Governor of the Bank of England that thiswas a political decision," he told the committee, which isexamining the sale to see if there was undue politicalinterference behind it.
The decision by Lloyds to favour Co-op prompted allegationsthat the coalition government, which had pledged to backcustomer-owned financial-services businesses as an alternativeto mainstream banks, had encouraged the choice.
Levene said King told him that, regardless of the details ofits bid, NBNK's offer would not be accepted. As a result, hesaid, the government had failed to ensure a new bank was createdto challenge established banks.
When asked by the chairman of the committee, Andrew Tyrie,if he was alleging that Lloyds had acted in bad faith, Levenereplied "yes". He told Tyrie, however, that he had no plans totake legal action and said later in the evidence session that hehad "no hard evidence" to back up his claims.
Lloyds was ordered to sell the branches as a condition of a45 billion-pound ($74 billion) government rescue in 2008. It hasdenied being subject to political pressure and disputedsuggestions of ministerial interference in the sale.
The sale collapsed last April when it emerged that Co-opneeded to plug a 1.5 billion-pound capital hole at its bankingarm. The full extent of its problems has subsequently emergedwith the bank falling under the control of bondholders,including U.S. hedge funds, while its former chairman becameembroiled in a drugs scandal.
Levene said he personally handed a document to LloydsChairman Win Bischoff which spelt out the risks of selling thebranches to the Co-op. Lloyds has said it has "no record orrecollection" of receiving that document.
"I gave the document to Sir Win. If he said I didn't give itto him that's untrue," Levene told the committee.
Britain's Conservative and Liberal Democrat parties pledgedto promote mutuals to create a more competitive banking industrywhen they agreed to form a coalition government in 2010. Theopposition Labour party has criticised their lack of progress,with leader Ed Miliband announcing plans to create two newchallenger banks if his party wins the next election in 2015.
Following the collapse of the Co-op deal, Lloyds hasrebranded the branches as TSB and spun them off into a separateentity which it intends to list on the stock market in 2014.In written evidence to the committee, Bischoff said the bank wasengaged in "good discussions" with European regulators to enableit to do so.
