Sweeping restructuring of the Co-op’s bank could see hundreds of jobs lost amid the closure of around 50 branches from its 324 estate
The Co-operative Group on Monday sought to reassure customers of its troubled banking arm that its ethical approach could be maintained as it confirmed that activist hedge funds were taking a crucial role in the £1.5bn rescue of the bank.
The loss-making bank indicated that hundreds of jobs were on the line as it announced a sweeping restructuring that will see the closure of around 50 branches from its 324 estate. It plans to move more customers to online banking and its network of corporate banking sectors is also to be rationalised.
The restructuring is an attempt to stabilise the bank, which needs £1.5bn of extra capital to absorb losses on loans which have turned sour. Until now, it has been 100% owned by the mutual Co-operative Group.
The group of supermarkets, funeral homes and pharmacies, is being forced to hand 70% of the bank to bondholders led by US hedge funds Silver Point and Aurelius, who have forced dramatic changes to the original plan first announced in June.
Richard Pym, the new chairman of Co-op Bank, said that if the bondholders did not vote for the new scheme the only alternative was “resolution” – in other words, being taken under control by the Bank of England, or even possibly nationalisation.
The group of hedge funds, advised by Caroline Silver of Moelis and known as LT2, stressed that they were determined to maintain the ethical stance for which the Co-op Bank is best known.
“We are proud that the recapitalisation will enable the Co-op Bank to continue its unique mission as a UK bank committed to the values and ethics of the co-operative movement. With the benefit of financial strength and the strong leadership brought into the bank this spring, we look forward to the resurgence of this unique institution,” she said.
The Co-op Group will now put £462m into the revamped bank rather than the £1bn announced in June while the bond holders will take a 70% stake in the bank rather than the 25% originally expected. However, the hedge funds in the LT2 are also putting in an extra £125m of capital in addition to their bonds.
The LT2 group – so-called because they owned lower tier 2 debt – also revealed the identities of their backers as Beach Point Capital Management, Caspian Capital, Canyon Capital Advisors, amd Monarch Alternative Capital.
Niall Booker, appointed as chief executive of the bank in May, said that he now wanted to focus on implementing a business plan that is likely to take five years to implement. He also stressed the commitment to ethics.
“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,” Booker said. The “legacy issues” of the past – largely bad loans from Britannia Building Society deal in 2009 – were have an “impact for some time”.
Jobs are under threat with the branch closure programme. Some 15% of the 324 branches are to be shut, in sharp contrast to the ambitions of the previous management, which had planned to take the network to almost 1,000 branches via the abortive takeover of 631 branches from Lloyds Banking Group .
The Co-op admitted the bank would make no profits until 2015 at the earliest, and possibly not “for some years thereafter.”
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