Lloyds Banking Group's proposed sale to The Co-operative Group of 632 branches, including 185 in Scotland, is being slowed by regulatory demands for a bigger-hitting board to run the new business, it was claimed yesterday.

The Co-op, named before Christmas as Lloyds' preferred bidder for the EU-enforced sale, has held unsuccessful talks with Gary Hoffman, former boss of Northern Rock and now chief executive of bid rival NBNK, about heading its UK banking operation.

The breakdown of the talks and the Co-op's headhunting problems are said to have threatened to derail the takeover. Apparently the Co-op was still seeking to satisfy the Financial Services Authority it has a sufficiently experienced team to run the enlarged group. The deal would treble the Co-op's UK high street presence and make it a major competitor to the big three banks in Scotland.