Economy
Co-op Group stake in bank further diluted as £400m fundraising begins
The Co-operative Group will see its stake in the Co-operative Bank reduced further, as the troubled lender seeks to raise £400m to cover its losses. The group currently owns 30% of the bank but this share is expected to fall to 20%, although it is likely to remain the single largest shareholder.
The Co-op lost control of the bank when a £1.5 billion black hole in its balance sheet was discovered, leading to lenders taking over last year. The additional capital now being sought is to ensure that the bank meets its minimum capital requirement after it uncovered new costs related to misconduct fines.
An independent review, carried out by Sir Christopher Kelly, blamed the crisis at the bank on a “culture of mediocrity” and bad management and governance. The report said the failings began when it merged with the Britannia Building Society in 2009.
The money will be raised by the issuing of 200m new ordinary shares, of which four major shareholders have agreed to take 31%. The new shares that the Co-operative Group purchases will be funded by selling part of its existing stake.
In a statement, the group said, “The Co-operative Group notes today’s announcement from the Co-operative Bank in relation to its £400m capital raising and confirms its participation, as described in the bank’s announcement.
“While the size of the group’s shareholding will be reduced following the capital raising, we will retain a significant stake and expect to remain the single largest shareholder. The group remains supportive of the bank and its strategy.”
The bank reported losses of £1.3 billion for 2013 and issued a statement saying it does not expect to make a profit for several years. The Co-operative Group also revealed “disastrous” losses of £2.5 billion, reflecting the impact of recapitalising the bank.
Niall Booker, chief executive of the bank, commented, “If successful, the additional capital to be raised through this transaction will enable us to reset our starting capital position for the execution of our business plan to return to our roots as a bank focused on our retail and SME customers with values and ethics at the heart of our business.”
He asserted that the bank would stand by its ethical credentials that “set [it] apart” from competitors whilst simplifying the business, reducing costs and de-risking non-core assets.
The Co-operative Bank also said its chairman, former Alliance & Leicester chief executive Richard Pym, was leaving his post after less than a year with the organisation.
Photo: The Co-operative via Flickr
Further reading:
Co-op criticised over ethical farms sale
Kelly review tells Co-operatives Bank’s ‘sorry story’
Co-op board ‘manifestly dysfunctional’, says review by Lord Myners