The Co-op's intended purchase of 632 branches of Lloyds is rumoured to be on the verge of collapse.
Any deal must be rubber stamped by November 2013 and there is doubt that Co-op will be able to meet the deadline.
While Co-op is the preferred bidder and has exclusive negotiation rights until June, banking venture NBNK has tabled its own bid for the branch network.
NBNK has offered shareholders – including the 40% Government stake – the option of receiving cash and/or shares in a new bank.
Lloyds has no option but to sell off its branch network, but the suitability of a forced sale has been called into question.
"Given the time this deal has taken to consummate, it is unsurprising to learn that significant difficulties have arisen in the course of negotiations," said Paul Mumford, senior investment manager at Cavendish Asset Management.
"If the deal does collapse then Lloyds and the Government are left with a tricky situation on their hands which raises a lot of questions. Are there any other bidders waiting in the wings?
"Will we see a flotation? Is a new deal likely to match the value of the Co-Op one, or will the approaching deadline drive the price down?
"In many ways this just goes to demonstrate the disadvantages of a forced sale situation, especially in the context of the taxpayer bailout. Forcing Lloyds to sell these assets before a certain date may be in the interest of wider economic balance but it not necessarily in the interest of shareholders."
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