UPDATE 3-NBNK gets regulator backing for Lloyds branches bid
* Says FSA believes plans satisfactory so far
* Says talks with Lloyds progressing positively
* Lloyds says sharing more information with NBNK
* Regulatory doubts had weighed on NBNK proposal
* Co-operative remains Lloyds' preferred bidder (Adds comment from Co-op)
By Matt Scuffham
LONDON, June 1 (Reuters) - Fledgling banking venture NBNK said the UK financial regulator was happy with its plans so far to buy 632 branches from Lloyds, paving the way for it to emerge as a credible alternative to rival bidder, The Co-op.
NBNK, led by former Northern Rock executive Gary Hoffman, said it had approached the Financial Services Authority at the request of Lloyds and addressed regulatory concerns surrounding its proposal.
"The FSA has confirmed to NBNK that the process of engagement is satisfactory from its point of view at this stage," NBNK said on Friday.
Lloyds, which is 40 percent owned by the government following a 2008 bailout, ended a period of exclusive talks with the Co-Op in April. However the Co-op remains its preferred bidder.
The sale of the branches, code named Project Verde, was forced upon Lloyds by the European Commission as payback for the bank receiving about 20 billion pounds ($31 billion) of state aid during the 2008 financial crisis.
The sale could fetch up to 1.5 billion pounds and create Britain's seventh-biggest bank, with a 4.6 percent share of current accounts and 5 percent of mortgages.
NBNK, which is looking to create a new competitor to Britain's four major banks, said discussions held with Lloyds since the exclusivity period finished had "progressed positively" although it has yet to enter formal talks at board level.
"Having continued to engage constructively with Lloyds, I believe we have provided sufficient information to enable negotiations to progress for the sale of Verde to NBNK," Hoffman said in a statement.
Lloyds confirmed on Friday that it had held a number of meetings with NBNK, which had clarified parts of its proposal.
"We are now sharing more information with them, so that they can provide further clarity on other aspects of their offer," the bank said.
The Co-op declined to comment on the development.
Lloyds is also preparing plans for a stock market flotation of the branches and could ask European regulators for an extension to a November 2013 deadline for the sale if it fails to find an outright buyer.
The regulatory concerns over NBNK's proposal are predominantly around the venture's financial strength.
One source told Reuters in April that NBNK had held talks with Middle Eastern sovereign funds in order to bolster its bid, in addition to major UK blue chip investors. Its major institutional backers include Invesco, Aviva and Baillie Gifford.
NBNK insists that any concerns over its financial firepower are unfounded.
"NBNK's investors have remained supportive of and committed to its objectives, underlining the company's ability to finance the acquisition of Verde," it said on Friday.
NBNK made a fresh bid for the Verde branches in April, saying it was offering an "alternative demerger" plan. It wants to buy the branches and potentially float them so that Lloyds shareholders - including the UK taxpayer - can receive cash or shares in a new listed banking group.
The UK market is dominated by Barclays, HSBC , RBS and Lloyds, which is Britain's biggest retail bank. ($1=0.6497 British pounds) (Editing by Erica Billingham and Mike Nesbit)
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