The Co-op Group is to write off the value of its 20% share in the Co-operative Bank, reflecting the uncertainty surrounding the bank’s future, according to reports from Sky News.
In September, the Group announced it had written down the value of its stake in the bank from £185m to £140m. Sky claims that writing the stake off completely will now “plunge the mutual into an overall statutory loss” for last year.
The Group’s annual report for 2016, which will be published on Thursday 6 April, will show a healthy operating profit otherwise, Sky adds.
The Group declined to comment on the write-off ahead of its results announcement.
Writing in Co-op News in February, financial writer Paul Gosling highlighted that although the loss of a further £140m on its stake in the bank would be painful for the Group, it would not dangerous, “given that it has a net asset position of around £3bn”. But, he added, “£140m represents about six years’ Group profits on current performance levels”.
The Group has attracted more than 600,000 new members since it relaunched its membership scheme last autumn, and its food division has outperformed the wider grocery market for 18 consecutive quarters. Steve Murrells, who headed up food operations at the Group from 2012, replaced Richard Pennycook as Group CEO on 1 March. Mr Pennycook is remaining as an adviser on the future of its bank stake.
Related: Co-op Bank – in trouble again?
The Co-operative Bank, which has over four million customers across the UK, has lost money for five consecutive years and was formally put up for sale in mid-February. Potential bidders were asked to submit initial expressions of interest by 4 April, with Virgin Money and CYBG (owner of the Clydesdale and Yorkshire bank networks) among those expected to register proposals, according to Sky. There is also interest from other banking organisations in acquiring individual loan portfolios from the Co-op Bank.
A back-up plan involves “discussions with existing equity and debt security holders as well as new potential investors on a capital raise alternative to the sale process”, says the bank.
If that were to prove unsuccessful, it is likely that regulators would have to put the Co-op Bank into a resolution process, which would involve an orderly wind-down of the company’s operations and customers transferred elsewhere.
“The view that bank shares may be worthless has been suggested since the collapse in 2013, but it is good news that the Group is in a strong enough financial position to write off the loss without a threat to its wider businesses,” said Shaun Fensom of the Save Our Bank campaign.
“We believe the continuation of a sustainable ethical challenger bank with an identifiable co-operative stake remains the best outcome for the majority of stakeholders.
“For that reason we call on the Co-operative Group to join with us in pressing for a new ownership structure that puts customers at the centre of the bank’s future and helps strengthen its connection with its co-operative heritage.”