Wednesday, 22 March 2017

Co-op Bank accelerates sale as bidders get two-week deadline



Would-be bidders for the Co-operative Bank have been asked to lodge their interest within days, highlighting the urgency with which City financiers are attempting to identify a new owner for the struggling lender.
 
Sky News has learnt that advisers to the Co-op Bank have asked prospective buyers to lodge initial proposals with them by April 4, an expedited timetable which is understood to have been agreed in the last fortnight.


Sources said on Tuesday that CYBG, the owner of the Clydesdale and Yorkshire banks, and Virgin Money had sought access to financial information provided by Bank of America Merrill Lynch and UBS, the Co-op Bank's advisers.


It remains unclear, however, whether either CYBG or Virgin Money plan to make a formal offer for the entire Co-op Bank amid crunch talks about its future.


Other potential bidders - including Sabadell, the owner of TSB; Nationwide; and Santander UK - are understood not to have requested confidential financial information about the Co-op Bank to date, an indication that they are unlikely to table formal bids.


Sources said restrictive non-disclosure agreements drawn up by the Bank were prohibiting existing investors and bidders from engaging in wider discussions with each other.


News of the accelerated process comes as bankers attempt to resolve several key issues relating to its finances


One insider said the Bank of England had hosted a meeting last week at which the Co-op Bank's problematic pension schemes had been discussed.


Any buyer of the lender will not want to assume a disproportionate share of the pension liabilities, meaning that the Co-op Group, which holds a 20% stake in the bank that bears its name, is also central to the discussions.


Triennial valuations of the two schemes' deficits are due to be delivered in the summer.


Co-op Bank bonds have been trading at little more than 80p in the pound this week, underlining investors' pessimism that a £400m repayment due in September will be made.


The lender announced annual losses earlier this month of £477m, taking its total losses since its rescue in 2013 by a group of American hedge funds to well over £2.5bn.


Liam Coleman, the Co-op Bank's new chief executive, said two weeks ago that if the sale process was unsuccessful, he would seek to run an exercise aimed at reducing its debts by raising up to £750m of new capital.
 
 
Should that capital not be forthcoming, regulators would have little choice but to put the Co-op Bank into a resolution process, which would involve an orderly wind-down of the company's operations.


At that point, the likes of Nationwide could be asked to step forward to take on some or all of the Co-op Bank's 4m customers.


A number of other parties, including OneSavings Bank and Santander UK, are said to be more interested in acquiring individual loan portfolios from the Co-op Bank.


PricewaterhouseCoopers (PwC) was drafted in last year to help the Co-op Bank find buyers for a £350m portfolio of commercial real estate loans.


The Co-op Bank has been continuing to grapple with some of the issues that took it to the brink of collapse in 2013, although its customer base has been remarkably resilient during its period of turmoil.


The Co-op Bank's balance sheet ballooned following a disastrous merger with the Britannia Building Society, and then ran into trouble when it tried to buy more than 600 branches from Lloyds Banking Group.


Last summer, the mutual exercised its right to appoint a director to the board of the bank for the first time, raising the prospect of it playing a significant role in the resolution of the lender's future.


Richard Pennycook, who announced in January that he would step down as the Group's chief executive, is to remain as an adviser to the mutual on the future of its Bank stake.


Last September, the Co-op Group slashed the value of its bank stake by a quarter, implying that the entire financial services business is now worth just £725m.


The decision by the Co-op board underscored both wider banking industry uncertainty - reflected in the falling share prices of listed banks this year - and the particular circumstances of the Co-op Bank.


Last year, two former Co-op Bank executives - Barry Tootell, its former chief executive, and Keith Alderson, the former managing director of its corporate and business banking division - were fined and banned by the Prudential Regulation Authority for their stewardship of the lender.


The Co-op Bank's former chairman, Paul Flowers, brought it into disrepute when his drug-taking and sexual proclivities were exposed by a tabloid newspaper, while his financial competence was questioned by MPs.





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