The Co-operative Bank has abandoned talks over a sale after edging closer to clinching a deal with hedge funds to stump up millions of pounds to bolster its financial position.
The extra financing from hedge funds comes four months after the bank had put itself up for sale, weakened by low interest ratesand its costly turnaround programme.
On Monday, the bank announced it had ended any formal takeover talks to focus on the discussions with its existing investors. The talks with investors are “advanced” the bank said.
The bank – which has 4 million customers – has bonds which are held by institutions such as hedge funds as well as some retail investors.
The proposal being considered would allow the bank to continue as a standalone entity and “safeguard the bank’s values and ethics”.
The bank is known for its ethical stance and when it was rescued by hedge funds in 2013 it enshrined this commitment in its constitution. Its name can be reviewed by the business secretary if its use could “cause harm to the public” while the City regulator, the Financial Conduct Authority, has the power to prevent the use of the “co-operative” name to to protect consumers.
The bank – which has reported five consecutive years of losses – provided a short-update on its strategic plan, showing it might be able to pay dividends to shareholders in 2021. In its annual report it had said this might be possible in 2020.
While a number of potential bidders had originally been cited as interested in the bank – such as Virgin Money – it is thought that only one had remained until recently. That bid was from a consortium including Al Faisal Holding, a Qatari conglomerate with interests ranging from hotels to transport, in a deal coordinated by Interritus, an investment fund.
With the bid process now formally brought to a close, the hedge funds that invested in the bank in 2013 are leading the efforts to find up to £750m needed to appease the Bank of England. Their involvement meant the Co-operative Group’s stake in the bank was reduced from 100% to 20%.
The group’s stake is now expected to fall further as a result of the deal being negotiated. This will also involve separating the bank’s pension scheme from the wider group scheme.
“Discussions with respect to the separation of the Co-operative Pension Scheme (Pace) into sections for which Co-operative Group and bank have respective responsibility are advanced,” the bank said.