THE new chief executive of the Co-operative Group has launched a strategic review that could see a Bank of England-backed rescue plan for its embattled banking operation, or even the sale of Co-op Bank.
Euan Sutherland, who officially takes over from the outgoing Peter Marks at the mutual’s AGM on Saturday, is understood to have decided there will be no “sacred cows” in the review to raise money to fill an estimated £750 million black hole in the bank’s finances.
Pressure has been mounting on the Co-op since it pulled out of its agreement to buy 600 Lloyds Banking Group branches amid apparent regulatory concerns about its financial strength.
That was followed last week by credit ratings agency Moody’s slashing the Co-op Bank’s rating to junk status.
It was unclear last night whether the Co-op had already submitted a rescue plan for the banking operation to the Bank of England.
City analysts said the scale of the ratings downgrade was almost unprecedented, falling six notches in one go.
The bank, which has 340 branches and a market share about 2 or 3 per cent, has so far denied fears that it might need a taxpayer bailout alongside the likes of Royal Bank of Scotland, HBOS and Northern Rock.
A spokesman for the Co-op declined to comment on any potential rescue plan for the bank last night.
But it is understood the Co-op, like all other banks, has communicated its financial state to the Bank of England’s financial policy committee (FPC).
The FPC is responsible for systemic risk in the financial system, and Bank governor Sir Mervyn King recently warned there was a £25 billion black hole collectively in Britain’s banks.
The Co-op’s other businesses range from supermarkets to undertakers. It is understood that Sutherland hopes to present the results of his strategic review by August, when the Co-op is due to publish its half-year results.
Analysts say the plans for the mutual to raise money through asset sales to plug its black hole may run into problems, however. The sale of CIS, the group’s home and car insurance unit, was initially expected to raise at least £600m, but the competitiveness of the market – underlined by recent results from the likes of Direct Line and Prudential – has the City now pencilling in proceeds of only £200m to £280m.
Most analysts believe there is unlikely to be an imminent collapse of Co-op Bank. But they say Sutherland would only be able to sell it after cleaning up the finances.