Amid speculation that it may quit banking, the customer-owned Co-operative Group, headed by Bradford-born chief executive Peter Marks, has dropped plans to buy more than 600 high street branches from Lloyds Banking Group.

Mr Marks, who will retire at the Co-op’s annual meeting next month after a career spanning more than 40 years, defended the decision by the Co-op Bank to pull out of a deal mooted to be worth £750 million on the grounds that it would not be in the best interests of the mutual organisation’s members .

The Co-op had claimed the deal would be the “biggest shake-up in high street banking in a generation”, creating a bank with almost 1,000 branches and 11 million customers.

The branches, known as Project Verde, were put up for sale after the EU order Lloyds to dispose of them following its £20 billion taxpayer bailout during the financial crisis.

Mr Marks said: “After detailed and thorough consideration of all aspects of the Verde transaction, we have decided, at this time, that it is not in the best interests of our members to proceed with the transaction.

“Having worked closely and constructively with Lloyds we are naturally disappointed to have reached this conclusion.

“However, against the backdrop of the current economic environment, the worsened outlook for economic growth and the increasing regulatory requirements on the financial services sector in general, the Verde transaction would not currently deliver a suitable return for our members within a reasonable timeframe and with an acceptable level of risk.”

One commentator has suggested that under new chief executive, Euan Sutherland, the Co-op could rethink its commitment to banking.

The Co-op had reportedly struggled to plug a £1 billion capital gap needed to complete its takeover of the 632 Lloyds branches, which have about five million customers, 9,000 employees and a 4.3 per cent share of the current account market, after being named the preferred bidder in 2011 and planning to merge them with its network of more than 300 branches. Part-nationalised Lloyds will instead pursue a stock market flotation for the division this summer.

Lloyds chief executive Antonio Horta-Osorio said he was “disappointed” that the Co-op could not complete the purchase. The unsold branches will be rebranded as TSB, a histroic banking name dating back to 1810 when Trustee Savings Banks were created as part of a movement to encourage those on moderate means to put money aside.

TSB merged with Lloyds Bank in 1995 to create Lloyds TSB, but was once a famous banking brand in its own right. Mr Horta-Osorio said: “The TSB Bank will be an attractive retail and commercial bank that will have around 630 branches across the UK, a strong management team and will be a real challenger on the high street.”