Co-op Bank members approved the £700m rescue package yesterday in a deal which will reduce the Co-operative Group’s stake to 1%.
The plan will see the creditors behind previous rescues of the Bank swap their debt for equity, leaving it in the control of five hedge funds – BlueMountain Capital, Cyrus Capital Partners, GoldenTree Asset Management, Anchorage Capital, and Silver Point Capital.
The Bank said on Monday night that it expects to to complete the restructuring and recapitalisation, approved by 90% of it shareholders, by 1 September.
Under the deal, the Bank will raise £250m of new equity from existing investors and £450m from bondholders swapping into equity.
It’s the latest rescue for the Bank, which almost collapsed in 2013 after a £1.5bn black hole was found in its finances before being rescued by the hedge funds. The crisis saw the Group’s stake reduced from sole ownership to 20%.
In February, the Bank put itself up for sale after its capital base fell short of regulatory requirements but this was halted in June after the restructure plan was drawn up.
Earlier this month the Bank reported an interim loss of £135m and it is still dealing with problems surrounding its IT systems, which earned it criticism from regulators for missing a deadline for new rules on customer overdrafts.
When the rescue package was first announced, Bank chair Dennis Holt says the deal will preserve the Bank “as a viable standalone entity, with values and ethics at its heart”.
And a spokesperson for the investors said: “This further investment will provide the Bank with the capital needed to realise its potential as the UK’s leading ethical bank.”
But the move raises questions over the Bank’s continued use of the Co-operative name. This continues under an agreement monitors by sector body Co-operatives UK, which holds the Bank to co-op values and to supporting the movement.
But yesterday Labour MP John Mann told the press: “Now that the Bank is almost entirely owned by US hedge funds, it would be misleading to call it a co-op.
“To avoid any misunderstanding, it should now be renamed.”
- Paul Gosling: Where does the rescue deal leave the Co-operative Bank?
- Ian Snaith: How lawful is the ‘Co-operative’ Bank’s name now?