Lloyds Plans I.P.O. After Branch Sale Collapses LONDON - Lloyds Banking Group said on Wednesday it was planning an initial public offering of part of its branch network after the sale of the division to a rival British lender, Cooperative Bank, collapsed. The failed deal is the latest in a series of setbacks for British banks, which are looking to slash assets and increase their capital reserves in response to sluggish growth across Europe and new regulatory requirements. The European Union had set a November deadline for Lloyds, which is 39 percent owned by British taxpayers after receiving a multibillion-dollar bailout during the financial crisis, to sell the 632 branches as part of the conditions for receiving government support. Royal Bank of Scotland, which also received taxpayer money in 2008, also is considering the I.P.O. of some of its branch network after it failed to reach a deal to sell them to the Spanish bank Santander. Other British lenders, including Barclays and HSBC, are cutting underperforming divisions in an effort to improve their profitability. While Lloyds had reached an initial agreement to sell the branches for up to $1.1 billion last summer, Cooperative Bank said it had now decided not to buy the network because of Britain's sluggish economic growth and mounting regulatory oversight of the country's financial services sector. "We are disappointed that the Cooperative Group is unable to complete this transaction," Lloyds" chief executive, António Horta-Osório, said in a statement. We will now proceed with the option to I.P.O. the business. Shares in Lloyds rose less than one percent in early trading in London. The British bank will report its first quarter earnings on April 30 and did not provide a time frame for the potential I.P.O. The unit, to be named TSB Bank, has just under five million customers and 7,000 staff members across Britain. The markets may prove receptive to the new offering. Despite the renewed uncertainty about the sovereign debt crisis, investors have been flooding into Europe's equity markets in the hopes of high returns. A number of new I.P.O."s, including the $1.9 billion raised by the telecommunications company Telefónica Deutschland late last year, has raised hopes that Europe's capital markets could be slowly opening for business after years of anemic appetite for new listings. Lloyds" decision to tap the public markets instead of selling the branches to Cooperative Bank comes after almost a year of negotiations. The potential sale would have more than doubled the Cooperative Bank's network, though regulators had raised concerns that its top executives may not have had enough expertise to manage the expanded business. The potential transaction "offered a significant opportunity to the Cooperative," the firm's chief executive, Peter Marks, said in a statement. However, the deal "would not currently deliver a suitable return for our members within a reasonable time frame and with an acceptable level of risk."