Investors to the rescue for UK’s Co-op Bank?
The UK’s Co-operative Bank’s life may not be over just yet as it reveals it is in advanced discussions with existing investors over a rescue package.
As reported in February, the bank was put up for sale – with the minority investor Co-op Group saying it is “supportive of the plan to find the bank a new home”.
The bank’s recent history has been interesting – including a disastrous merger, huge losses, staff layoffs, a fine for mishandling payment protection insurance (PPI) claims, and its former chairman Paul Flowers was found snorting coke and renting escort boys.
In this latest twist, Co-op says it is talking about a “prospective equity capital raise and liability management exercise”; and about the separation of the Co-op Group pension scheme, which would open up the possibility of a takeover.
Potential suitors include Qatar-based Al Faisal Holding and Swiss investment firm Interritu, according to some reports.
Co-op adds it “continues to fully discuss both the sale process and the capital raise options with the Prudential Regulation Authority (PRA), which has welcomed the sale and capital raise process”.
The bank is the UK’s seventh biggest lender.
Earlier this year, TSB, OneSavings Bank and Paragon were named among the interested parties in a purchase. Also, Virgin Money considered the acquisition, but decided against it.
In 2015, the bank looked to revamp its IT infrastructure – calling it “inherently fragile”. Its losses in H1 2015 went from £77 million to £204 million and its attempt to replace its legacy systems with Infosys’ Finacle ended up with the writing off of £349 million.
The problems with the Finacle project originated from its merger with Britannia Building Society in 2009, which increased the complexity and scope of the transformation programme.
Co-op Bank had also planned to move Britannia onto Finacle as part of the roll-out, but management changes and cultural differences between the two entities saw an end to that ambition.
This was followed by another plan to buy 632 branches of Lloyds Bank’s network for £732 million, and to outsource the Co-op’s technology infrastructure to Lloyds. However, this didn’t happen as the bank announced soon after that it was putting a halt to the Finacle implementation.
Also in 2015, the idea of the bank separating from the Co-operative Group was deemed “more costly than currently contemplated”.