Wednesday, 14 June 2017

Co-op Group stake in bank to be slashed under hedge fund plan



The Co-op Group's stake in the bank which carries its name will be slashed to a "minimal" level under plans tabled by a group of American hedge funds to overhaul the struggling lender's finances.
 
Sky News has learnt that the mutual is in talks with the bank and its bondholders about restructuring the relationship agreement which dictates the use of the Co-op brand.


Sources said on Wednesday that as part of a revised plan tabled by the bondholders in recent days, the Co-op Group's shareholding in the bank could fall from 20% to less than 5%.


Before a previous rescue deal in 2013, the Co-op Group had owned 100% of its banking arm.


Under the existing agreement between them, the Co-op Bank's right to use the name can be removed by the Secretary of State for Business under certain circumstances, while the Group's stake must remain at 20% or above to guarantee certain other elements of the relationship agreement to continue.


Talks between the Co-op Bank, the hedge funds, the Group and regulators have been progressing for several months, and people close to the discussions said an announcement about a comprehensive restructuring of the lender could come as early as next week.


Among the other issues which requires a resolution is the fate of the joint pension scheme, which the bondholders will have to address as part of any move to take full control of the Co-op Bank.


The Co-op Group has already written off the value of its 20% equity stake in the bank, but is said to be likely to retain a 'symbolic' holding if the bondholders can agree a recapitalisation.


There is understood to remain a gap between the bondholders' refinancing proposals and regulators' demands, although it is understood to have narrowed significantly under the new plan tabled by the hedge funds.


News of the latest developments comes less than a week after Sky News revealed that a consortium comprising Swiss and Qatari investment groups had approached the Co-op Bank about a takeover, reviving hopes that the struggling lender could be sold outright to new long-term owners.


Interritus Limited, which is run by a German financier, and Al Faisal Holding have held several rounds of talks with the Co-op Bank's board and advisers, and have pledged to take a long-term approach to reviving its fortunes.

However, insiders believe any formal bid from them is unlikely to succeed because the quartet of leading bondholders - who also own most of the bank's shares - want to lead the restructuring plan themselves.


The scramble to rescue the Co-op Bank has been triggered by its need to find roughly £750m of new capital in the next few months to avoid being wound up by the Bank of England.


The US hedge funds - Blue Mountain Capital Management, Cyrus Capital Partners, GoldenTree Asset Management and Silver Point - have been in talks with the Prudential Regulation Authority (PRA) to argue that the level of new capital required is less than publicly indicated.


In March, the Co-op Bank said it would require between £700m and £750m of new top quality capital, the majority of which would be generated by exchanging some of its debt for equity - a process known as a liability management exercise.


The remainder - between £250m and £300m - would come from issuing new shares.


The Co-op Bank has been hit by a string of legacy issues, as well as the challenge posed by ultra-low interest rates, since its £1.5bn bailout in 2013.


The lender announced an annual loss this year of £477m, taking its total losses since its rescue in 2013 to well over £2.5bn.


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.


Its 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.



SKY        News.