The Co-operative Group has confirmed that it will be holding a 30 per cent stake in the Co-operative Bank, but it has also announced a plan to reduce costs by closing branches.
Today, the recapitalisation plan for the Bank was announced to generate £1.5 billion in capital. The Group will retain a 30% share in the Bank and will be the largest single shareholder, with no other single shareholder holding no more than 10% without regulatory approval.
The Group will put £462 million into the Bank with £125m coming from the LT2 Group, which is predominately represented by US hedge funds.
As part of the first phase of cost cutting initiatives, the Group will close around 50 branches leading to job losses by the end of 2014. Its branch network of 342 will be reduced by 15 per cent. A new digital offering for the Bank is to be the main focus of the business, along with other self-service facilities.
In the new Bank, which is expected to formalised with investors by the end of the year, co-operative values and ethics will be legally embedded into the constitution.
Euan Sutherland, Chief Executive of the Group, said: "We have enshrined the Values and Ethics that lie at the heart of the Co-operative Group into the new rules that govern the Bank. We have set up a Values and Ethics committee that will be chaired by a senior independent director. The Bank will be what its customers expect of it – a fair, responsible and trusted Bank that delivers great service to retail and small business customers, underpinned by the Values and Ethics of the Co-operative movement."
This message was reiterated in a national press campaign that underlined the Bank's ethical direction, under the headline: "Ethical banking has always been our DNA. Now it's in our constitution." It also said that by spring next year, it will hold a customer vote to redefine the Bank's ethical policy.
Mr Sutherland added: "Today we have taken a major step forward towards achieving our plan to secure the future of the Bank, putting in place an agreement with a number of our leading investors on a comprehensive Plan that will raise the necessary £1.5 billion of capital. The financial position of the Bank means that all stakeholders will have to make a contribution but in delivering this agreement we have worked hard to balance the distinct needs of all those affected."
Mr Sutherland also said that the Group's contribution of £462m will, in the main, be targeted to individual investors who will "suffer a loss", but, he said, "these options secure the best possible outcome for them, in the circumstances".
He added: "Our ability to support the financial future and business approach of the Bank was made possible because of our long-term view of the value that will be created in the four to five year transformation plan drawn up by the new management team. We are optimistic about the future; there is considerable potential to be realised across the Group and we are now well placed to restore the Co-operative brand to its rightful place at the heart of communities up and down Britain.”
Niall Booker, Chief Executive of Co-operative Bank, said: “The Bank is now focused on implementing our business plan which, following the capital raise, begins the process of strengthening the Bank, and returning it to profitability over time.
"We now have the opportunity to renew our focus on serving the needs of our retail and small business customers. We will strive to make things simpler for our customers, removing unnecessary processes and reducing costs. We will also put greater rigour into our risk management and controls, ensuring our customers are dealt with respectfully, fairly and transparently.
“The Bank has already taken a number of steps to address the challenges it faces. It is clear, however, that there is a significant task ahead; we are only in the very early stages of turning the business around. The legacy issues we are working hard to overcome will continue to have an impact on the Bank for some time."
The cost savings from the Bank are in addition to an internal Group-wide agenda to save £500m of expenditure by the end of 2017. Project Orion is expected to save £100m by the end of 2012 by streamlining how the organisation operates.
In a message to elected members, Co-operative Group Chairman Len Wardle said: "It will form a vital part of our recovery plans, focusing on our Trading Group businesses, their support centres, and the Group-wide corporate functions. The Bank will be pursuing its own cost reduction programme to align the business with its new focus on serving retail customers and small and medium sized businesses.
"The first phase of Orion will concentrate on streamlining our activity, reducing our expenditure and controlling our costs. During the next few months, Orion will achieve radical cost reduction through new scrutiny of costs and a step change to our governance. The Orion Programme will complement and build on existing cost reduction initiatives already underway."
Mr Wardle added: "I want us to address the need for cost reduction in the Trading Group urgently and I want us to do so in a co-operative way. That means taking individual responsibility in our own areas for expenditure or activity that we control or can influence; demonstrating solidarity with the Group as a whole; and acting in ways that show we are fair, open, honest and equitable in all our dealings."