Co-operative Group has insisted that its troubled banking arm will retain its ethical approach after agreeing a rescue deal that will see the mutual left holding just 30 per cent of the lender.
With control passing to hedge funds and other investors such as pension funds and insurers, fears were raised over the bank’s stance, but Euan Sutherland, the group’s Scots-born chief executive, pledged that “co-operative principles” were being embedded in its constitution.
He added: “This is the first bank to be rescued, and to survive as a standalone entity, without taxpayer money.”
However, Andre Spicer, professor of organisational behaviour at Cass Business School, said: “History suggests that, once a mutual bank is privatised, it drops the focus on doing good to focus on doing well for shareholders.”
An original bailout plan, which would have seen the group retain a majority stake in the bank while floating a chunk of its shares on the stock exchange, was torn up after bondholders pressed for a better deal.
Trading in the lender’s bonds was suspended today as it thrashed out proposals that will see the bulk of its shares fall into the hands of bondholders, including institutional investors and US hedge funds, as it tries to plug a £1.5 billion black hole in its finances.
Several thousand retail investors, such as pensioners, who invested an average of £1,000 each in the high-yielding bonds, are expected to be handed income-paying bonds following a campaign against an initial plan that would have seen them take heavy losses.
A group of bondholders, led by US hedge funds Aurelius Capital Management and Silver Point Capital and advised by investment bank Moelis & Co, tabled an alternative plan for more debt to be converted into shares, leaving Co-op with a minority stake.
Sutherland said it had been a “hugely difficult” time for the mutual, which also runs supermarkets, a travel agency and funeral services.
He added: “We have reached an agreement in principle that saves the Co-operative Bank. This is as a result of months of work and intensive discussions and negotiations with our key stakeholders and investors.
“Most importantly, we have to build a fair and attractive proposal for small investors, the hard-working families across Britain that have invested in the Co-op Bank, and I’m confident that we have done this and we’ll be able to announce the details of all these measures in the coming days.”
Co-op Bank, which has about 4.7 million customers, admitted in August that it would take several years to return to profit after slumping to a £709.4m loss in the first half of the year.
The firm, which also revealed that is was facing an extra charge of up to £105m to cover issues such as mis-sold payment protection insurance, saw plans to buy more than 600 branches from Lloyds for £750m fall apart in April. The group’s former chief executive, Peter Marks, will tomorrow face a grilling from MPs on the treasury select committee over the collapse of that deal, dubbed “project verde”.
Former Treasury official Sir Christopher Kelly has also been drafted in by the group to carry out a “forensic” inquiry into the proposed transaction with Lloyds and Co-op’s disastrous takeover of Britannia Building Society in 2009, which has saddled the bank with soured corporate loans. Kelly’s findings are due to be presented at the group’s annual meeting in May.