Co-op warns over Lloyds branches deal Peter Marks, chief executive of the Co-operative Group, said its attempt to buy more than 600 Lloyds Banking Group branches might come to nothing as it announced a 6 per cent drop in annual pre-tax profit on Thursday. However, Mr Marks also defended the mutually-owned group's financial services prowess and disclosed that it had lined up an unnamed executive to run its bank if the acquisition took place. The Co-op has been in exclusive talks with Lloyds to buy 632 branches worth £1bn-£1.5bn since December. The disposal process, known as Project Verde, is being carried out to enable Lloyds to meet European Union state aid rules. However, Lloyds said earlier this month that it would not achieve its aim of agreeing a sale by the end of March. One sticking point has been discussions between the Co-op and the Financial Services Authority, the regulator. On Thursday, Mr Marks said talks with Lloyds and the FSA were continuing, adding that an outcome was expected in weeks rather than months. "This is a complex transaction and there is no certainty we will reach a final agreement," he said. There are a number of regulatory and economic issues that we have to be very clear about before we complete a transaction . . . This is nothing to do with our ability to run a bank or our governance," he added. He contrasted the Co-operative Banking Group's resilience during the financial crisis with the fate of rivals that crumpled: "Our governance stood the test of time," Mr Marks said. Yet he added: "This is a very major step forward for us. We absolutely understand the FSA's need to ensure that we can do this. There are regulatory issues - hurdles that we are working through. I can't predict right now whether we will get to the end of this. The Co-operative Banking Group is currently run by an acting chief executive, Barry Tootell. Mr Marks said a full-time appointee was "waiting in the wings" but declined to identify the person. The Co-op reported sales of £12.32bn for 2011, down marginally from £12.38bn a year earlier. Profit before tax and member payments - the equivalent of pre-tax profit for a listed company - fell 6 per cent to £373m. The decline was driven by a 21 per cent drop in the underlying operating profit produced by the Co-op's supermarket arm, which Mr Marks blamed on pricing pressure and investment in the business. Its banking arm also had to absorb a £90m provision related to the mis-selling of payment protection insurance, a controversial form of loan cover that has turned into an industry-wide scandal.