Lloyds agrees terms with Co-op on branch sale

A pedestrian passes the head office of Lloyds Banking Group in central London April 11, 2011.

LONDON (Reuters) - State-backed Lloyds Banking Group (LLOY.L) said on Wednesday it had reached an understanding over the terms of a deal to sell over 600 branches to the Co-operative Group and would end talks over a sale to new banking venture NBNK (NBNK.L).

"The group and Co-op now have an understanding on the commercial terms for the transaction. During this final stage of the discussions, and in order to proceed to 'Heads of Agreement', negotiations with the Co-op will proceed on an exclusive basis," Lloyds said in a statement.

Lloyds, 40 percent owned by the government, must sell the branches, code named Verde, under European State Aid rules, having been bailed out by Britain in 2008.

The Verde business has around 5 million customers and represents 6 percent of all bank branches in Britain. When combined with the Co-op business, it will have 7 percent of the total market for current accounts in Britain.

Lloyds said the new entity would likely have equity capital of 1.5 billion pounds supporting it.'

(Reporting by Matt Scuffham; Editing by Neil Maidment)