Mergers & Acquisitions
Offers invited as Co-op Bank sale considered under turnaround plans
13 February 2017
The board of the Co-operative Bank has hoisted a For Sale sign over the troubled lender as concerns mount over its capital position.
The bank, which has four million customers, said its ability to meet longer-term UK bank regulatory capital requirements has been hampered by low interest rates and higher than anticipated transformation and "conduct remediation" costs.
As a result, and following an annual planning review, it is "inviting offers", the bank said.
"The board is commencing a sale process, something always considered a potential outcome of the turnaround plan, alongside considering other options to build capital and meet the longer-term capital requirements applicable to all UK banks," the bank said in a statement.
Co-op Bank almost collapsed in 2013 after the discovery of a £1.5 billion black hole in its finances and it was forced into a painful debt for equity swap. As a result, the loss-making lender is now majority controlled by US hedge funds.
The bank also confirmed it will post a "significant" loss for the year to December 31 after warning in January that its common equity tier one capital ratio - an industry measure of financial strength - will fall and remain below 10% in the medium term.
Last week the Co-operative Group, which owns 20% of the bank, embarked on a top-level shake-up that will see Richard Pennycook step down as group chief executive.
The move, which will see food boss Steve Murrells take the helm, was accompanied by comments from chairman Allan Leighton, who refused to rule out pumping more money into the loss-making lender.
The bank’s chairman, Dennis Holt, said: “The bank has met its Pillar 1 regulatory capital requirements continuously since 2014 and expects to continue to do so.
“At the same time, since we began work on the bank’s turnaround, the board has always been clear that we would need to build capital for the future.
“We are now commencing a sale process, alongside other options.
“The bank’s ethical heritage and customer proposition will be a central consideration in this.”
The bank said it is also considering options other than a sale to build capital, including raising cash from new and existing investors.
It is working with advisers UBS and Bank of America Merrill Lynch.
The bank’s chief executive, Liam Coleman, said: “While our plan has been impacted by lower-for-longer interest rates, the costs associated with the sheer scale of the transformation and the legacy issues we faced in 2013, there is considerable potential to build the bank’s retail franchise further using the strength of the brand, its reputation for strong customer service and distinctive ethical position.”
The Bank of England’s Prudential Regulation Authority said it “welcomes” actions announced by the bank.
The Co-op Group said in a statement: “We will continue to work with the bank and other investors through the process. We are focused on finding the best outcome for our members, two million of whom are bank customers, as well as the members of our shared pension scheme which is well-funded and supported by the group.”
Nick Ansell/PA Wire