Talks aimed at rescuing the Co have resulted in the group injecting just over £460m into the bank in order to retain a 30% equity stake, though despite this it could take between four and five years for the bank’s turnaround strategy to “reduce risk, secure substantial long-term cost savings and restore the core business to growth”, bosses admitted.
“The bank is now focused on implementing [its] business s plan, which, following the capital raise, begins the process of strengthening the bank and returning it to profitability over time,” Niall Booker, the Co-operative Bank’s chief executive, said after the rescue was announced.
Co-op executives made it clear that although the fine details of the deal were still to be agreed by investors– including a decision by 12,000 or so retail bondholders over accepting a new bond with a final repayment, or one that pays a guaranteed income for 12 years – the plan had to work or else the bank would face insolvency.
“We believe these options secure the best possible outcome in the circumstances,” said Ed Sutherland, the Co-op’s group chief executive, who while acknowledging the loss in value both retail and bond investors faced, added that given the scenario if the bank entered administration there would be no recovery for investors whatsoever.
What can investors expect?
While other lenders that have fallen into difficulty are now on the road to recovery, with the likes of state-backed Lloyds and Royal Bank of Scotland expected to return to private hands in the near future, the Co-op has a huge challenge ahead of it.
Its branch numbers are expected to be cut by around 15%, and it has been estimated there may be around 1,000 redundancies.
Moreover, concerns have been raised about whether or not there are more skeletons lurking in the Co-op’s closet. Speaking before today’s deal, TwentyFour’s Mark Holman pointed out that the bank had been “slow” to release bad news in the past, and that investors may be wondering whether the Co has made similar mistakes in other parts of its business.
Elsewhere, concerns about hedge funds’ input have largely been answered with pledged to ensure the Co-op’s values and ethics code is written into the deal.
Under today’s agreement, Aurelius Capital Management, Monarch Alternative Capital and Silver Point, all value-driven US houses, will contribute just over £1bn to meet the Co-op’s capital shortfall, with the Co-op group contributing the remainder.
