The Co-operative Group is set to hold crunch talks this week amid concerns it may withdraw from a £1.5 billion deal to buy 632 Lloyds branches.
Chief executive Peter Marks is expected to update the board regarding the progress of talks with Lloyds and the Financial Services Authority.
The FSA is stipulating that The Co-op holds an extra £3 billion of capital at group level, which would effectively give the regulator supervisory powers over the whole company and not just the bank.
The move would divert capital away from The Co-op’s other businesses, which include insurance, legal services, funeral care, supermarkets and travel agents.
Although this week’s meeting was originally scheduled for a progress update on the bid, known as Project Verde, speculation is mounting that the group is meeting to decide whether to pull the plug on the deal instead.
Last week, banking start-up NBNK put forward a revised bid for the branches, thought to be around £2 billion, which is £500 million higher The Co-op’s current bid.
NBNK chief executive, former Northern Rock boss Gary Hoffman, said that Lloyds’ shareholders, including UK taxpayers, could receive cash and/ or shares as part of the deal.
Lloyds has until November 2013 to shed the branches, along with £47 billion of loans, to satisfy European Commission rules.