Published: Thu, June 29, 2017
Economy | By Melissa Porter

Co-operative Bank scraps sale plans as bailout talks continue

Co-operative Bank scraps sale plans as bailout talks continue

Sky News has learnt that directors of the ethical lender are meeting to finalise an agreement which appears to have secured the backing of the Co-op Group, removing the final major obstacle to a financial restructuring package. Co-operative Group now has a 20 percent stake in the bank.

A Co-operative Bank statement adds the firm's board has "decided to discontinue the formal sale process under the takeover code".

'A majority of the key commercial aspects of the proposal have been substantially agreed with the investors, ' the bank revealed yesterday. The bank is in discussions to raise an additional £250m of new equity.

The FT has reported the Co-op Bank is in advanced talks with a group of hedge fund investors; Cyprus Capital Partners, Golden Tree Asset Management, Silver Point Capital and Blue Mountain.

However, the Co-op confirms that it's still "business as usual" for customers.

When it offered itself for sale, the Co-op 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 rules. "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".

If the deal is confirmed, the Co-op Group - once the sole shareholder in the lender that carries its name - will see its stake reduced to around 1%, with the Co-op Bank becoming nearly entirely owned by a consortium of Wall Street financiers.

The bank said then that that would need a cash injection of £750mln to fill a capital shortfall.

The total capital requirement has been marginally reduced by the regulator's revised guidance to the Co-op Bank, a source said.

The bank has had a hard few years and in 2013, narrowly avoided collapse after problematic real estate loans left a £1.5bn hole in its finances.

The Co-op Group and Co-op Bank declined to comment, while the pension trustees and bondholders could not be reached.

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