Co-op Bank discontinues sale process amid rescue deal hopes

Ivan Schwartz
June 26, 2017

The Co-operative Bank says it is no longer up for sale as a rescue plan with its hedge fund owners is near.

A majority of the key commercial aspects of the deal had been "substantially agreed", it said, and it was in advanced talks over how to manage the group's pension liabilities, it said in response to media reports of an impending deal.

Co-op said that, given the advanced nature of the proposal, it has made a decision to discontinue the formal sale process. At 6.58am Brent crude was trading at $46.03 a barrel and the pound was trading at $1.274 against the dollar and at €1.138 against the euro.

On June 19, the bank had confirmed media speculation and said "it is in advanced discussions with a group of existing investors with a view to a prospective equity capital raise and liability management exercise".

The lender, part of the Co-op Group, put itself up for sale in February, after admitting it would not be able to meet regulatory capital targets before 2020.

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It is understood the Co-op Bank is close to securing a £700m ($892m) deal with a group of U.S. hedge funds, including Silver Point Capital, Blue Mountain, Cyrus Capital Partners and Golden Tree Asset Management. It would also "safeguard the bank's values and ethics".

Co-op Bank nearly collapsed in 2013 after the discovery of a £1.5 billion black hole in its finances and it was forced into a painful debt-for-equity swap.

However, Co-op Bank now appears to be more likely to raise capital from its current shareholders, with the lender being 80% owned by U.S. hedge funds.

Significantly, the Co-op Bank also said it had been informed by banking regulators at the weekend that its long-term capital requirements would be lower than previously expected.

While the bank cut its costs by 20% within 12 months of its bailout in December 2013, when it was rescued by a host of hedge funds which took control of a 70% stake, it has failed to properly get back on its feet.

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