LONDON Lloyds Banking Group (LLOY.L) will spin off over 600 branches and list them as a new British bank if an auction of the business fails to attract decent bids.
Last month, Lloyds appointed Paul Pester to run the branches earmarked for sale, and said he would head the business if it was separately listed.
"It has always been the objective to have a dual track. We will look for a buyer, and if we need to, the IPO option is there," a spokeswoman for Lloyds said on Thursday.
Lloyds has been told by European regulators to sell 600 branches, which would represent Britain's seventh-biggest bank and could be worth more than 3 billion pounds, ($4.9 billion), analysts have said.
It needs to sell them as the cost of taking a state rescue during the financial crisis, which has left the taxpayer with a 41 percent stake.
Selling the branches is the preferred option, and Virgin Money, part of entrepreneur Richard Branson's group, last week said it planned to bid, and new UK bank venture NBNK is seen as the other front-runner.
Other bidders could include National Australia Bank (NAB.AX) and food retailer Tesco (TSCO.L).
"We have identified credible interest ... We will have serious indications of interest by the end of July," Chief Executive Antonio Horta-Osorio told UK lawmakers when quizzed on the sale on Wednesday.
Formal sales documents will be sent out on Friday.
An independent commission assessing competition among Britain's banks wants Lloyds to sell more branches, however, to create a stronger new entrant. It will make formal recommendations in September.
Horta-Osorio said there was "overwhelming evidence" the sale of 600 branches would create a serious competitor, however. It would account for about 5 percent of UK current accounts.
JPMorgan and Citigroup, who are advising on the sale, have offered to help bidders fill a funding gap of nearly 20 billion pounds.
The branches in the portfolio include Lloyds TSB in Scotland, the Cheltenham & Gloucester business, and over 250 more Lloyds branches in England and Wales.
Pester joined Lloyds from Santander (SAN.MC), where he managed the integration of Bradford & Bingley with Abbey and Alliance & Leicester and the rebranding of the enlarged business. He previously led the building of Virgin Money during five years as CEO.
(Reporting by Steve Slater; Editing by Will Waterman)
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