By Jill Treanor
Bondholders warned they may be forced to step in as troubled bank attempts to find a buyer
Bondholders in the Co-operative Bank are braced to take losses as the troubled lender scrambles to find £750m to boost its financial strength.
The bank is expected to update investors as soon as this week about its attempts to find a buyer, amid speculation that it is struggling to attract an offer and that bondholders will be forced to step in.
Even if a bidder is found, bondholders still face losses as part of the Co-op bank’s requirement to meet the Bank of England’s requests for more capital. The Co-op Bank has warned bondholders that potential bidders have sought “some form of liability management exercise” – which could see investors take losses in return for equity stakes.
The LME could boost the bank’s capital by £450m, which would leave another £300m to be raised in fresh funds. This would require Co-op Bank to convince existing investors to stump up more cash or seek more backers. Among those flagged as potential new investors are Virgin Money, TSB and buyout houses JC Flowers and Cerberus.
The Bank of England is reported to have Co-op under “intensive supervision”. The Manchester-based bank has endured five consecutive years of losses since its problems started to emerge in 2013, which have sapped its ability to rebuild its capital.
But the Co-op Bank’s management hopes to attract a buyer because of its 4 million customers who are attracted by its ethical approach to doing business.
Co-op Bank, which refused to comment on Tuesday, insisted last month that it had “received a number of non-binding proposals from strategic and financial parties” and “selected several parties to enter a further phase” of talks.
The bank put itself up for sale in February, four years after its near-collapse which sparked its rescue by hedge funds.
The hedge funds have been left owning 80% of the bank, which until then had been 100% owned by the Co-operative Group of supermarkets and funeral homes. But the mutual is unlikely to be ready to put more cash into the bank after writing down the value of its 20% stake to nil last month. At the time, the Co-op Group finance director, Ian Ellis expressed hope that the bank’s sale would be successful and that the group expected “to get some value from the sale”.
However, the Co-op Group may also demand a solution to pension scheme it shares with the bank, which is due for revaluation in July, and could be a potential barrier to any buyer.
An institution that once had bold ambitions to merge with TSB, the Co-op Bank has been dramatically scaled back over the past years, from nearly 300 branches to just 95.