City sceptical as Co-operative Bank put up for sale

The Co-op Bank is up for sale as concerns mount over its capital position. Picture: Nick Ansell/PA Wire
The Co-op Bank is up for sale as concerns mount over its capital position. Picture: Nick Ansell/PA Wire
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The board of the Co-operative Bank has hoisted a for sale sign over the troubled lender as concerns mount over its capital position.

The lossmaking Co-op Bank has put itself up for sale more than three years after a £1.5 billion hole in its balance sheet triggered its dramatic rescue by a mixture of bondholders and hedge funds.

It is difficult to see them queueing round the block for this one

City source

However, there was some City scepticism yesterday about the level of interest among the UK’s challenger banks for a rival that is set to announce another “significant loss” for 2016 after years of upheaval and whose capital buffers are below regulatory requirements.

READ MORE: Co-op Bank warns of continued losses amid rate cuts

Names initially mooted as potential bidders included TSB, Clydesdale Bank, Tesco Bank, Virgin Money and the Nationwide building society.

But all were keeping tight-lipped yesterday. TSB said: “We never comment on rumour or speculation.” Analysts also pointed out that Clydesdale Bank and its sister group Yorkshire Bank had had talks with Royal Bank of Scotland about buying up its 300-branch Williams & Glyn network.

One City source said: “It is difficult to see them (suitors) queueing round the block for this one.”

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Co-op Bank, where the mutual-owned Co-op Group still has a minority 20 per cent stake, said that its ability to meet UK bank regulatory capital requirements had been hindered by low interest rates and higher than expected transformation and “conduct remediation” costs.

As a result, and following an annual planning review, the bank said that it was “inviting offers”. It added: “The board is commencing a sale process, something always considered a potential outcome of the turnaround plan, alongside considering other options to build capital and meet the longer-term capital requirements applicable to all UK banks.”

The latter is thought to include seeking equity capital from existing and new providers.

Co-op Bank almost collapsed in 2013 after the discovery of a £1.5bn hole in its finances, following a surge in bad debts on property loans after its takeover of Britannia Building Society in 2009.

It was forced into a painful debt-for-equity swap, with the result that it is now majority controlled by US hedge funds. Co-op Bank warned last month that its key capital ratio – the capital cushion that backs its loanbook – will fall and remain below 10 per cent in the medium term.

Last week the Co-op Group announced that Richard Pennycook is stepping down as group chief executive. Co-op Bank’s chairman Dennis Holt said yesterday: “The bank has met its Pillar 1 regulatory capital requirements continuously since 2014 and expects to continue to do so.

“At the same time, since we began work on the bank’s turnaround, the board has always been clear that we would need to build capital for the future.

“We are now commencing a sale process, alongside other options. The bank’s ethical heritage and customer proposition will be a central consideration in this.”

The move came as outsourcing giant Capita said it had resolved its “contractual differences” with the lender, which will see the group’s Western Mortgage Services arm continue to provide mortgage administration services and new home loan application processing under a new contract that will run until the end of 2020, with an option to extend. However, Capita said that work on an IT system transformation project will cease.

“Capita is pleased to have resolved this issue and importantly secured the jobs of our 740 employees on this contract in Plymouth, Leek and London,” the firm added.

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