Probe hinders sale of Co-op insurance arm

Euan Sutherland: Co-op Group chief behind 'bail-in' rescue plan. Picture: Contributed
Euan Sutherland: Co-op Group chief behind 'bail-in' rescue plan. Picture: Contributed
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ATTEMPTS to sell the Co-operative Bank’s general insurance arm to help plug a £1.5 billion hole in its finances could be hampered by an ongoing probe into the “dysfunctional” motor cover market.

Analysts said that progress over the sale of the division, announced in March after the lender plunged to a full-year loss of £673.7 million, appears to have stalled.

Meanwhile, Royal Bank of Scotland will make a decision on who is the preferred bidder for its 300-plus branches within two to three weeks, as two suitors hit back at their rival’s claim that there “is only one real bid on the table”.

Co-op has already sold its fund management and life insurance arms to Scottish Life-owner Royal London for £219m and declined to comment on developments with its general insurance business.

But Gary Greenwood, an analyst at Shore Capital, said: “With a Competition Commission inquiry hanging over the motor market, getting a good price may be challenging.”

The regulator launched its probe a year ago after the Office of Fair Trading (OFT) found that the market, worth an estimated £9.4bn, was not working effectively.

The OFT said motorists’ premiums were being inflated by £225m a year because insurers had little control over the bills they pay for “at fault” drivers.

However, it is believed that the bank – which has received “significant” interest in the business – is more relaxed about its prospects than some observers in the City and will not rush into a quick sale at a knock-down price.

Greenwood said the Co-op’s reputation had “taken a hit” after the Prudential Regulation Authority ruled it must raise £1.5bn to protect it against any future financial crises.

More details of its woes will be revealed on Thursday, when it publishes its results for the first six months of the year.

The figures are expected to show more deep losses triggered by impaired commercial property loans from its disastrous acquisition of the Britannia Building Society in 2009.

That deal is to be examined by former Treasury official Sir Christopher Kelly, who was drafted in last month to run an independent probe into the bank’s finances. His “forensic” inquiry, which will conclude in May, will also look into the collapse in April of a £750m deal to buy 632 branches from Lloyds Banking Group.

Under a rescue plan drawn up by Co-operative Group chief executive Euan Sutherland, the bank’s bondholders will be forced to take losses on their investment as part of a “bail-in” in October.

Interest payments on the bank’s perpetual subordinated bonds have been halted until the bail-in is completed in November, and campaigner Mark Taber, who is representing more than 1,700 pensioners and retail investors, has said that individual holders of the Co-op’s bonds are losing as much as £3m a week by selling their investments at “massive losses” in a bid to preserve some of their capital.

Greenwood said: “One thing is for sure, the Co-op is not out of the woods yet and it is certainly not proving to be the challenger bank that it, and the UK government, had hoped it could become.”

Former Tesco Bank boss Andrew Higginson, who chairs RBS branches suitor W&G Investments, last week claimed that rival offers from two consortia are only interested in acquiring minority stakes in the “project rainbow” assets.

It is understood his assertion has gone down badly with buyout firms AnaCap and Blackstone, which are behind one offer for the branches, and with US private equity firms Centerbridge and Corsair, which are tabling a rival bid.

Sources told Scotland on Sunday that it was “simply not true” that W&G’s was the only real bid on the table. One insider said W&G’s offer “seems to be full of conditions and undervalues this attractive growing business”.

They also took issue with Higginson’s claim that W&G had unique carve-out experience involving banking assets. Corsair and Centerbridge have done similar work, including BankUnited and National City in the US, and buying Aktua Soluciones Financieras from Banesto in Spain.