LONDON -(Dow Jones)- Directors at the Co-Operative Group's banking division are to hold a key board meeting this week, amid fears the mutual will abandon a deal to acquire 632 branches belonging to Lloyds Banking Group PLC (LYG), the Sunday Times and the Sunday Telegraph report, without citing sources. Lloyds is currently in exclusive negotiations to sell the branches to the Co-Op. However, the deal has been hindered by regulatory issues, sparking fears that it might collapse. Regulatory demands that the Co-Op must put in place a structure that will ensure that the entire mutual will be governed by the U.K.'s regulator, the Financial Services Authority, rather than just its banking arm, is at the center of concerns, the Sunday Telegraph said. Citing an unnamed source, the newspaper said the FSA has made it clear that its concerns are focused on the structure of the complex group and the capital requirements that would result from the transformatory transaction. Last week, investment company NBNK Investments PLC (NBNK.LM) made a sweetened offer for the branches in a bid to create a challenger bank in the U.K. Lloyds previously confirmed that a flotation of the branches remains an option and that an update on the sale would be made in the second quarter. The bank is due to hold a meeting of its board next week, the Sunday Telegraph said. Lloyds, which is 40%-owned by the government, has to sell the branches on condition of receiving state aid when it was bailed out by the U.K. government in 2008. The Co-Op wasn't immediately available for comment. Lloyds also wasn't immediately available for comment. Newspaper Web site: http://www.timesonline.co.uk Newspaper Web site: http://www.telegraph.co.uk -London Bureau, Dow Jones Newswires; +44 (0)20 7842 9320
