The Co-operative Bank is no longer up for sale with a rescue plan on the horizon.
The bank had put itself up for sale in February after it was unable to meet capital requirements for Bank Of England regulations.
But it is now said to be having ‘advanced discussions’ with existing investors regarding a rescue deal.
Insider sources say the plan has been ‘substantially agreed’ for the re-capitalisation of its business. In a statement it said it had ‘decided to discontinue the formal sale process under the takeover code.’
It is understood the proposed deal would involve the bank’s existing investors injecting further capital to allow the Co-op to meet its long term capital requirements and continue to trade as a stand-alone entity.
Talks about the separation of its pension scheme from the current vast scheme it shares with the Co-operative Group are also on-going.
Exact details of the plans have not yet been released, but it is believed that the bank’s current investors – the American hedge funds of Blue Mountain Capital Management, Cyrus Capital Partners, GoldenTree Asset Management and Silver Point – are willing to inject £240 million in fresh capital towards the £700 million required.
The majority of the remaining cash required would be generated by exchanging some of the bank’s debt for equity – a process known as a liability management exercise.
The remainder of the money would be raised by issuing new shares.
Message to customers
In a message to customers the CEO Liam Coleman said: “We confirmed last week that the bank is in advanced discussions with a group of existing investors with a view to a prospective equity capital raise and recapitalisation.
“The proposal with the investors, if implemented, would meet the objective we set at the start of the sale and capital raise process. It would see us continue to operate as a stand-alone entity and would safeguard our values and ethics, which are central to everything we do.
“Given the advanced nature of these discussions with the investors, the Board has decided to discontinue the Formal Sale Process under the Takeover Code in relation to the sale of the Bank, which means we have ended discussions with all other parties.”
The bank has been plagued by legacy problems since a disastrous merger with the Britannia Building Society in 2009 caused by problems with its commercial properties loan book.
Things went from bad to worse in 2013 when the decision to try to buy 600 Trustee Savings Bank branches from Lloyds uncovered a £1.5 billion ‘black hole’ in the Co-op’s balance sheet.
On the verge of collapse
The bank, at that time wholly owned by the Co-operative Group, was on the verge of collapse when the hedge fund investors stepped in and bought an 80% share of the business, though it retained the Co-op name.
The bank has struggled financially since then. This year it announced losses of £477 million, taking its overall losses since 2013 to more than £2.5 billion.
Earlier this year they were faced with the stark reality of having to find enough capital to meet Bank Of England regulations and put itself up for sale while continuing to try to negotiate the rescue deal.
Failure to raise the cash in one way or another could mean the Bank Of England will be forced to step in to start a ‘resolution process’ which would wind up the Co-op’s affairs in an orderly manner.