Wednesday 26th October 2016                 Change text size:

Co-op Group could give up majority control of bank to US hedge funds

Co-operative Bank By Felix O via Flickr

The Co-operative Group may no longer keep a majority stake when the Co-op Bank floats on the stock market, with two hedge funds reportedly poised to take control of the lender.

According to the BBC, the Co-op has bowed to pressure from creditors, including the two hedge funds.

The group is expected to reveal that the cost of compensating customers for mis-selling payment protection insurance (PPI) is around £100m more than anticipated, placing greater pressure on the lender.

The Co-op Group said on Monday that it remains “committed to delivering a solution that provides both the necessary capital for the bank, while preserving its ethical focus, and an acceptable outcome for bondholders, including private investors”.

The organisation added that the plan continues to “evolve through the process of consultation and negotiation with bondholders”.

Under the original plan, the group kept a 70% stake in the bank when it was listed on the stock market. The group was expected to inject £1 billion into the bank, with bondholders taking £500m of losses.

Despite the group saying its ethical policy could be protected during the rescue plan, Andre Spicer, professor of organisational behaviour at Cass Business School, disagreed that this would be the case.

“It is unlikely that the Co-op will maintain its ethical approach in the long run”, he said.

History suggests that once a mutual bank is privatised it drops the focus on doing good to focus on doing well for shareholders.

“Many ex-mutuals became the worst offenders in the lead up to the financial crisis. Previously co-operative owned banks like Northern Rock and Branford and Bingley were dominated by a hard-hitting sales culture. They had loan books stuffed with dodgy loans. All this was due to the over-riding search for shareholder returns.”

Further reading:

Co-operative Group considers repayments as part of bank rescue plan

Co-operative group records £559m loss due to struggling banking arm

TSB returns to the high street with renewed focus on local communities

Triodos Bank AGM: profits or philanthropy is a false choice

The Guide to Sustainable Banking

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