UK didn't interfere in Lloyds branch sale - Osborne

By Matt Scuffham LONDON (Reuters) - Britain's finance ministry did not interfere in the process of state-backed Lloyds Banking Group's planned sale of hundreds of branches to the Co-operative Bank, Chancellor George Osborne has told lawmakers. The sale collapsed in April last year and the full scale of the Co-op Bank's problems later became apparent when a 1.5 billion-pound capital shortfall was exposed and it was forced into a restructuring which saw it fall under the control of bondholders, including U.S. hedge funds. Parliament's Treasury Select Committee, which examines the work of the Treasury, has been conducting an inquiry into whether undue political pressure was applied to Lloyds or the regulator to sell the 631 branches to the Co-op. Lloyds was ordered to sell the branches, code named Verde, by European competition regulators as a condition for retroactively approving its 20.5 billion-pound ($34 billion) government bailout in the financial crisis. In a letter to the select committee's chairman, Andrew Tyrie, Osborne said ministers had made it clear to the Financial Services Authority that it had sole responsibility for judging whether the planned sale should be allowed to proceed and if it presented a threat to financial stability. "We were always very clear both that the commercial decision on the Verde sale was a matter for Lloyds and that the then-regulator the FSA should decide whether to allow the sale to proceed or not on prudential grounds ... At no point, did the Treasury seek to interfere in those judgments," Osborne said. Lloyds now plans to sell off the branches, which have been rebranded TSB, via a stock market flotation later this year. ($1=0.6012 British pounds) (Editing by Greg Mahlich)