For sale: Co-op Bank looks for buyers
The Guardian, by Jill Treanor
US hedge fund owners look at options to bolster funds including selling off the troubled bank.
The Co-operative Bank has put itself up for sale, four years after it nearly collapsed and had to be bailed out by US hedge funds.
Amid persistent speculation over its long-term future, the loss-making bank said its board had decided to look for buyers, as well as look at other ways of bolstering its financial position.
Speculation about potential buyers immediately focused on private equity houses or so-called challenger banks such as TSB, owned by Sabadell of Spain, Clydesdale and Yorkshire Bank, Virgin Money, and Santander.
While a sale appears to be the preferred route, options including a stock market flotation are also being considered. A break-up of the bank could also attract bidders from specialist banks for parcels of loans and customers.
Dennis Holt, the bank’s chairman, said it had now cut costs and sold troubled loans to begin to seek a buyer for the Manchester-based operation with 4 million customers and 105 branches.
“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,” he said, adding a sale had always been a potential outcome.
When problems at the Co-op Bank emerged in 2013 it was discovered that the bank – then 100% owned by the Co-operative Group of supermarkets and funeral homes – needed £1.5bn. Paul Flowers, its former chairman, was later fined for possessing cocaine, crystal meth and ketamine and was dismissed as a minister by the Methodist church earlier this year.
The troubles at the bank left a cloud over the co-operative sector and put the Co-op Group under huge financial pressure. The Group now owns just 20% and said it was “supportive of the plan to find the bank a new home”. The mutual has 2 million members who are bank customers. “Our goal is to ensure the continued provision of the type of co-operative banking products our members want,” it said. The separation of the pension fund – which would be important to any bidder – is yet to be agreed.
The bank would not put a value on its operations or indicate how much extra funds it needs. The bank is meeting the capital requirements set out by international regulators but not the requirement specifically tailored by the Bank of England’s Prudential Regulation Authority.
A year ago the Co-op Group wrote down the value of its £333m investment in the bank to just £185m and again to £140m six months later. This appears to indicate that the bank is worth around £750m.
If the bank cannot find a buyer it could ask its existing shareholders for more cash, try to lure new investors or force its bondholders to take losses.
Liam Coleman, the chief executive, said it was “business as usual” for customers – which have fallen in number by 700,000 since the problems emerged. He said the turnaround plan had been slowed bylow interest rates and the “sheer scale” of the transformation, in part required after the bank’s merger with the Britannia Building Society just as the financial crisis started.
“We’d just to like to say what a great bank we have here … we have a growing business, we have a growing current account business. We have made progress in the last three years of a turnaround plan.”
It is not clear what any buyer might want to do with the Co-op name which it can currently use after writing its ethical approach into its articles of association when it was undergoing its restructuring. Any future owner would have to decide whether to continue this. The business secretary – Greg Clark – and the Financial Conduct Authority can also review the name if it misleads the public.
Save Our Bank, a campaign group which claims to have 10,000 supporters said it wanted to buy more shares in the bank. “Our goal is for the bank to succeed as an ethical, customer-owned and led bank,” it said.
The Bank of England’s PRA is watching the situation closely. “We will continue to assess the bank’s progress in building greater financial resilience over the coming months,” the PRA said.
In 2013, when it was still owned by the Co-operative Group, the bank had tried to buy TSB from Lloyds Banking Group. TSB is now owned by Sabadell of Spain and is seen as a potential suitor for the scaled-back Co-op Bank.