Co-operative Bank agrees £700m rescue package

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The Co-operative Bank has secured a £700m rescue package to stop the lender from being wound up.

Investors have agreed to swap their debt for a stake in the bank.

The bank also said it would to separate its pension fund from the Co-operative Group’s scheme, which has £8bn of liabilities.

The Bank of England’s Prudential Regulation Authority said it had accepted the plan to return the bank to a firm footing.

“Supervisors will remain closely engaged with the bank while the actions announced today are taken forward. Implementation is subject to certain regulatory approvals,” said the PRA, which is responsible for supervising the UK’s banks and insurance companies.

The debt-for-equity swap with hedge funds means that the Co-op Group’s stake in the bank will fall from 20% to about 1%.

The Co-op also said that the relationship agreement between the group and the bank, covering the promotion of bank services to members of the wider business and other matters, “will naturally fall away and come to a formal end in 2020”.

It added that it “is supportive of the plan and intends to vote in favour of the capital raising”.

The Co-op Bank has been been struggling for four years since an abortive attempt to buy 632 branches from Lloyds revealed a £1.5bn hole in its finances.

After failing to find a buyer for the bank, the existing owners, which are predominantly US investment funds, have agreed to write off £443m they are owed and will sell £250m worth of new shares.

Ethical banking

The bank, known for its ethical approach, has been under intense supervision from the Bank of England for many months. Wednesday’s injection of fresh money will spare the regulator the job of stepping in to manage a wind-up of the bank.

The investors will also pump £100m into the bank’s pension scheme over the next 10 years to secure its separation from the wider Co-op Group pension scheme.

Despite its troubles, Co-op Bank’s customers have proved loyal, with nearly four million account holders and mortgage borrowers sticking with the bank despite its financial difficulties and a sex and drug scandal involving its former chairman, Methodist minister Paul Flowers.

The bank says it will continue to run itself with the ethical values it has observed since its founding in 1872.

Co-op Group makes loss as bank stake written off

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The Co-op Group has reported its first annual loss since 2013 after declaring that its stake in Co-operative Bank is worth nothing.

Co-op Group reported a pre-tax loss of £132m for 2016, a sharp deterioration on the previous year’s profit of £23m.

It reduced the value of its 20% stake in Co-operative Bank from £185m to zero, reflecting the bank’s continuing problems.

The group also said that its financing costs had risen by £74m in 2016.

The Co-op Bank, which has four million customers, put itself up for sale in February.

It almost collapsed in 2013, but was rescued by a group of US investors. Under that deal, Co-operative Group kept a 20% stake in the bank.

But the new owners have struggled to revive the bank’s fortunes. Last year, it lost £477m – the fifth consecutive year of losses.

Co-op Group said it had made a “prudent valuation” of its stake in Co-operative Bank based on the “volatility” caused by the sale of the bank.

New markets

Co-op Group said that operating profits, which exclude the loss related to the bank stake, were up 32% in 2016 at £148m.

Those profits were boosted by the sale of its crematoria and a 3% rise in sales.

“We’ve made great progress in rebuilding our Co-op, with all our businesses delivering strong performances,” said chief executive Steve Murrells.

He said that in 2017, the Co-op Group would look to expand outside of its current markets.

“We are exploring how we can enter markets that are not serving people well and challenging existing providers,” he said.

Retail analysts are speculating that could mean an entry into the electricity and gas business.

“Electricity and gas providers are regularly in the press for customer complaints and generally not serving customers well, therefore this looks to be a logical step for the Co-operative given their ambition to enter new markets,” said Steve Dresser, director at Grocery Insight.

“It would be a good brand extension, but isn’t without risk given the volatile nature of the market,” he added.

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

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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.”.

Co-op Bank reports loss as suitors circle

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The Co-operative Bank has reported another a loss of £477m, one month after it put itself up for sale.

The loss is not as deep as the £610m recorded in 2015, but it is the fifth year in a row the bank has lost money. The bank, in which the Co-operative Group still has a small stake, was rescued from the brink of collapse by a group of hedge funds in 2013. So far, no bidder has declared themselves, but the bank said it was “pleased with the interest to date”. It was forced to offer itself for sale after it was unable to reach a strong enough footing to satisfy the Bank of England’s regulatory requirements.

The bank blamed low interest rates and the higher-than-expected cost of its turnaround plan for its failure to meet the Bank’s Prudential Regulation Authority (PRA) rules. The PRA had welcomed the bank’s decision to put itself up for sale. But the planned sales raised concerns from the former business secretary, Sir Vince Cable, and two Treasury Committee MPs. The Co-op Bank has four million customers and is well known for its ethical standpoint, which its board said made it “a strong franchise with significant potential” to prospective buyers.

The Co-op Bank puts itself up for sale

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The Co-op Bank says it is putting itself up for sale and is inviting offers to buy all of its shares.

The bank, 20% owned by the Co-operative Group, almost collapsed in 2013, and was bailed out by US hedge funds. The bank has four million customers and is well know for its ethical standpoint, which it says makes it “a strong franchise with significant potential” when it comes to a sale. It has not been able to strengthen its finances because of low interest rates.

‘Financial resilience’

Bank of England sources told the BBC that the Co-op had been operating with below recommended capital levels for some time, so an action plan was needed. From among potential buyers, the TSB has told the BBC that although they are focused on completing the separation of their IT systems from Lloyds, it would be interested if the price was right. A spokesman for the Bank of England’s Prudential Regulation Authority said it welcomed the action announced today by the Co-operative Bank. “We will continue to assess the bank’s progress in building greater financial resilience over the coming months,” it added.

Black hole

The Co-operative Bank merged with the Britannia building society in 2009. The deal was later held responsible for the near collapse of the bank. In 2013, the bank revealed a £1.5bn black hole in its accounts, which led to its rescue. Bank chairman Paul Flowers also stepped down over concerns about expenses in 2013, before pleading guilty to drug possession the following year. And in January 2016 the Bank of England banned two former Co-operative Bank executives – former chief executive Barry Tootell and former managing director Keith Alderson – from holding senior banking positions. In the autumn of 2015 the Co-op Bank said it would remain loss-making until the end of 2017.

‘Customer service’

Dennis Holt, bank chairman, said: “Customers value the Co-operative Bank and our ethical brand is a point of difference that sets us apart in the market. “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 also said it had made considerable progress in delivering its continuing turnaround plan. And it says it is considering ways to raise funds from existing and new providers. Separately, it says it has resolved a key contractual differences with Capita.Western Mortgage Services, part of Capita, will continue to provide mortgage administration services and new mortgage application processing for the bank and its clients.

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