The Co-operative Group looks set to lose control of the Co-operative Bank. Will this affect current customers?
The Co-operative Group is set to lose its banking arm, with it being passed onto a group of private investors.
The Group had announced a £1.5 billion survival plan back in June, but it admitted this has been rejected.
However, Euan Sutherland, the chief executive of the Group, confirmed it will keep a 30% stake in the troubled bank.
Losing ownership
The Co-op Group will not be able to go forward with a recovery plan as a major shareholder, as previously planned.
Two hedge funds, Aurelius Capital and Silver Point Capital, are believed to be heading up a group of commercial bondholders which will take a majority control over Co-op Bank.
Sutherland admitted the group was going through a “hugely difficult time”. He confirmed that taxpayer money would not be used to save the bank and details of a “fair and attractive” proposal would be announced shortly.
He also made a point of focusing on the ethical ethos of the bank which he says will not be lost. But if the bank is listed on the stock market it’s unclear how this will be achieved.
A statement from the bank said: “The Board of the Group remains committed to delivering a solution that provides the necessary capital for the Bank, while preserving its ethical focus, and an acceptable outcome for bondholders, including private investors.
[SPOTLIGHT]"We currently expect that many elements of any recapitalisation plan will be materially different to the outline provided on 17th June 2013.”
But the problem is the bank still needs to raise £1.5 billion to survive.This is not going to be easy, especially after it increased the amount of money set aside to pay compensation to customers for payment protection insurance (PPI) mis-selling.
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Failed merger
Problems started at the bank earlier this year when it failed to complete the planned takeover of 630 Lloyds branches. It was then downgraded in May by Moody’s and its chief executive, Barry Tootell, resigned.
The main reason for these troubles is the acquisition of Britannia Building Society in 2009. The financial growth which was predicted from this merger never happened. Earlier this year it reported losses of £674 million.
In response to this the bank said it would ask investors in the bank to give up their bonds in return for a mixture of shares and bonds in October.
Most bonds are held in pension funds, but around 5% are owned by private investors. The proposed swap would leave investors with riskier assets and was slammed by investors.
What does this mean for customers?
At the moment there has been no confirmation of what will happen to the bank. Details are expected to be announced imminently but it’s unlikely anything will change for retail customers such as those with current accounts, mortgages or savings accounts with the bank.
As so few details have been announced, it’s not clear exactly what will happen with regards to investments in the bank. If you are an investor you have the option of holding out to see what is announced or selling your bonds.
Choosing the latter may be the wisest option, especially after a bump in the price of Co-op bonds. But you won’t be able to do this straight away as selling is currently suspended.