Hammer blow leaves Levene's bank courting NAB

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Lord Levene's NBNK could make a fresh approach to National Australia Bank about its UK business in the wake of its failure to land Lloyds Banking Group's Verde business.

Tim Tookey, acting chief executive and finance director of Lloyds, yesterday dealt NBNK's hopes of creating a new force in British banking a hammer blow after handing exclusive negotiating rights to the Co-op.

Mr Tookey said there was "less execution risk" in dealing with an established player. This means Lloyds would also be able to sell Verde – which has 632 branches, 9,000 staff and 5 million customers – with less capital injected into it to satisfy regulators.

Verde is the third banking business to come up for sale in the wake of the Government's stated desire to create new competition in the industry. Banco Santander UK bought more than 300 Royal Bank of Scotland branches last year, and Virgin paid £747m for the "good" part of Northern Rock, sold by the Government last month.

NBNK was set up by Lord Levene, a former investment banker and Lloyd's of London chairman, to offer "simple" old-fashioned banking products. But it was barred from the latter auction because of its decision to appoint Northern Rock's old boss Gary Hoffman as its chief executive.

NBNK's attempt to buy NAB UK – which comprises the Yorkshire and Clydesdale banks – broke down because the two sides could not agree on a price.Sources close to the bank said all options remained open, including a renewed approach to NAB.

Co-op's move will dramatically increase its size and power on the high street. As well as having 632 branches, Verde has 6 per cent of the British current account market, £36bn in deposits and a loan and mortgage book of about £47bn.

Adding it to the Co-op would bring its share of the current account market to 7.6 per cent. The mutual acquired Britannia Building Society in 2009 and at present has 343 branches and 6.5 million customers, including in current accounts, mortgages and credit cards.