Co-operative Bank says it has interest of several credible buyers

The bank, which recently reported a £477m full-year loss, put itself up for sale last month in a bid to raise more capital

The Co-operative Bank has confirmed that a number of “credible” potential buyers have expressed an interest in the troubled bank, as fears grow that it will be broken up rather than sold as an ongoing entity. Co-op Bank, which is controlled by US hedge funds, put itself up for sale in February in a bid to raise more capital and give greater stability to its 4 million customers.

In a statement, it said: “A number of credible strategic and financial parties have expressed interest in the sale process and are currently evaluating information on the bank.” According to sources close to the bank, the sales process is currently for a 100% purchase of the bank only, and no parties are being invited to bid for parcels of the bank’s business. In its statement, Co-op said: “The bank plans to proceed to a second phase of the sale process where selected parties will be provided with additional information in order to continue their due diligence with a view to making an offer for all of the issued ordinary share capital of the bank.”

But Co-op added that despite expressions of interest, there was no certainty that an offer would be forthcoming. The bank said that it was also talking with existing capital providers and new investors on raising more capital. It has set a deadline of the first half of April for bidders to submit preliminary expressions of interest. But many of the banks cited as potential buyers of the bank in its entirety have faded away. There was initial speculation of a bid from TSB’s parent company, Spanish lender Sabadell, but a move has since been ruled out.  Attention is now turning to investment firms and vulture funds which are keen to buy up parts but not all of the business. One City source told Reuters that “a break-up of the bank is inevitable,” citing private equity outfits Cerberus and Apollo as potential buyers. But other sources close to the Co-op said the reports of a break-up are being driven by funds with an agenda to grab the bank’s assets on the cheap.

Breaking up the bank, into a “good bank” and a “bad bank” holding most of the bad debts, would enable bidders from specialist banks to purchase parcels of loans and customers. But it would create intense uncertainty among the bank’s customers and its remaining workforce of 3,895, down by half since the bank’s near collapse in 2013. Trading in the bank’s bonds, which are seen as an indicator of the bank’s survival prospects, suggests that hopes for a full takeover deal are fading. The value of the bank’s bonds fell to fresh lows on Friday, suggesting that investors have taken little reassurance from the bank’s official statement in the morning.  It has emerged that the Bank of England has placed Co-op Bank under “intensive supervision” with contingency plans to ensure an “orderly failure” if a sale or fresh capital raising is not agreed. A failure to agree a deal will mean that Co-op is put into “resolution” by the Bank of England. This process, based on a blueprint drawn up in the wake of the financial crisis, would involve transferring some of the bank’s business to a third party or forcing bondholders to recapitalise the firm with a “bail-in”. The firm is then restructured and stabilised. However, customers would remain protected by the Financial Services Compensation Scheme, which guarantees deposits up to the value of £85,000.

The 150-year old, ethically-minded bank failed a Bank of England stress test in 2014, and recently reported a £477m full-year loss. Problems at the Co-op Bank emerged in 2013, four years after its disastrous takeover of the Britannia building society. 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. It now owns just 20% of the lender and said in February that it was “supportive of the plan to find the bank a new home”. The mutual has 2 million members who are bank customers. When it put itself up for sale in February, it said: “Our goal is to ensure the continued provision of the type of co-operative banking products our members want.”.

Posted on by CCKeith in Uncategorized
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