Co-Operative Bank Considers Sale, Capital Raising

Both the Co-op Bank and Capita said they have resolved their contractual differences, with the outsourcer set to continue providing mortgage administration services to the lender.

Co-op Bank on Monday put itself up for sale, saying it needs more capital and may buy back bonds at a discount.

There is a view in the City that in the next few months the Co-op bank will embark on another dramatic restructuring, including converting bondholders into equity.

In 2013, the bank was rescued by various USA hedge funds after the organisation nearly went bust when it was discovered that the bank needed £1.5 billion in funding in order to remain afloat.

As the board started the possible sale process today, the bank said the move was "always considered a potential outcome of the turnaround plan, alongside considering other options to build capital and meet the longer-term capital requirements applicable to all United Kingdom banks".

"Since 2013, we have successfully addressed significant legacy issues, reduced the cost base and rebuilt our franchise and customer proposition", said Liam Coleman, CEO of the Co-Operative Bank.

A spokesman for the Bank of England's Prudential Regulation Authority said: "The PRA welcomes the actions announced today by the Co-operative Bank".

The Co-op is expected to post another annual loss this year and the persistent low interest rates that have characterised the UK's economic landscape for the last eight years mean the lender, like its peers, has struggled to make a margin between what it pays its borrowers and what it charges its lenders.

The bank stressed that it is "business as usual for day-to-day banking" for its four million customers.

The Co-op Group said in a statement: "We will continue to work with the bank and other investors through the process".

In a note to clients, Peel analysts Christopher Bamberry said: "No indication of financial impact (including potential write offs), but the mortgage processing element will continue to 2020".

The Bank expects to report a loss for the year ending 31 December 2016, which it says it will be "significant" but lower than the loss reported in the year ending 31 December 2015.

  • Eleanor Harrison