Lloyds sells 632 branches to Co-op for £1.25bn less than hoped for "This is another step towards creating a new banking system for Britain that gives real choice to customers and supports the economy," the Chancellor said. The sale of hundreds of Lloyds branches to the Co-operative creates a new challenger bank and promotes mutuals. This... represents another important step towards a more competitive banking sector. Mr Osborne's view was echoed by the chief executive of Lloyds, which was forced to sell the branches by the European Commission as a condition of receiving state aid. Antonio Horta-Osorio said: "Today's agreement is an important step in meeting our obligations under the mandated sale of our branches. We believe the Co-operative will be a good owner for our business, customers and colleagues, and the combined banking business will be a significant competitor on the high street with nearly 10pc of today's UK branch network. Lloyds will also underwrite the debt Co-op will sell to pay for the deal, as well as letting Co-op use its IT platform for the branches, which come with £1.5bn of equity capital and £11bn of risk-weighted assets. Lloyds considered a flotation of the Verde assets just last month as a battle between Co-op and bank-acquisition vehicle NBNK appeared to fade. Hailing the end of the uncertainty, Mr Horta-Osorio added: "In agreeing to move ahead with the Co-operative we provide greater certainty for our customers and for our shareholders. In addition to an upfront consideration, we will also get to share in the future financial performance of the combined banking business, which will be an effective challenger with a strong customer focus. Paul Pester, who has overseen the deal for Lloyds, will become the new chief executive of Co-op Banking, replacing acting chief executive Barry Tootell. The deal is expected to complete in 2013, subject to regulatory clearance. Lloyds' shares fell 0.5pc to 29.68p in early trading.