Co-op Bank no longer for sale as it nears deal with investors
● Agreement should put lender on firm footing
The Co-operative Bank is no longer up for sale as it revealed yesterday that it is near agreement on a rescue package with existing investors that would put it on a secure financial footing.
The lossmaking lender said it was in advanced talks with a group of existing investors with a view to a prospective raising of equity cash and a recapitalisation, thought to be worth about £700 million.
Co-op Bank was forced to put itself on the market in February after it was unable to bolster its financial cushions enough to satisfy the Prudential Regulation Authority (PRA).
In a statement yesterday, the bank said the latest proposals would enable it to meet its long-term capital requirements and allow it to continue as a stand-alone entity.
“The bank confirms that a majority of the key commercial aspects of the proposal have been substantially agreed between the bank and the investors,” Co-op Bank said.
It also said the proposals would “safeguard the bank’s values and ethics”. Co-op Bank said that, given the advanced nature of the proposal, it had decided to end the formal sale process.
The group added that talks continued regarding the separation of the Co-op Group pension scheme. Under the current arrangement, the bank must carry a share of the Coop Group’s £8 billion pension liabilities, which has been a sticking point with investors.
However, a source familiar with the matter said that the positions of the investors and the pension scheme trustees on the issue were now “largely aligned”.
In an accompanying financial update, Co-op Bank said it was still targeting profitability inthemediumtermandamidsingle digit return on equity in 2021.
In March, the bank, which has four million customers, said its ability to meet longerterm UK bank regulatory capital requirements had been hampered by low interest rates and higher than anticipated restructuring and “conduct remediation” costs.
The group almost collapsed in 2013 after the discovery of a £1.5bn hole in its balance sheet, partly due to a surge in sour property loans in the wake of its takeover of Britannia building society in 2009.
Co-op Bank was forced into a debt-for-equity swap that gave majority control to US hedge funds. The Co-operative Group, best known for groceries to funerals, now owns just 20 per cent of the lender. Aberdeen-headquartered subsea cable and connector specialist Hydro Group has increased its global presence after striking a partnership deal with Turkish firm IMCA Electronics. The tieup is set to aid Hydro’s customer support in Turkey and help develop “key business opportunities” within the region. Graham Wilkie, head of global development at Hydro, said: “This new agreement signifies the next step in our ambitious plans for strategic international growth.”