At least 15% of the Co-operative Bank’s branches will close as part of its £1.5 billion recapitalisation. Its rescue plan also sees hedge funds take a 70% stake in the bank.
The number of job losses as a result of the restructuring has not yet been confirmed. Niall Booker, chief executive of the Co-op Bank, also noted that it would be some time before the bank returns to making a profit.
The Co-op’s merger with Britannia Building Society in 2009 left the bank with bad debts and payment protection insurance (PPI) compensation costs are expected to be higher than anticipated. This means it has a £1.5 billion hole to plug.
Private investors will inject £1.062 billion with the Co-op Group also contributing £462m.
Euan Sutherland, chief executive of the Co-operative Group, said, “On successful completion of the plan announced today, the Co-operative Group will remain the biggest single shareholder in the bank, as such we will be able to help shape its future direction and its approach to banking.”
Under the restructuring plan, the Co-op will retain a 30% stake in the bank.
Small investors in the bank will be given two options. They can either receive their existing annual payment over 12 years but with a loss of capital sum, or lower annual payments but with a future capital amount.
Andre Spicer, professor of organisational behaviour at Cass Business School, said we are likely to see more cases like the Co-op in the future.
He commented, “[Co-op] is the first example of a bank-in – a way of dealing with failed banks which means the taxpayer does not need to foot the clean-up bill – as happened with RBS.
“The upside of such deals is that banks keep their doors open and the public is not landed with a huge bill. The downside is that bond holders can find themselves as unwilling owners of a brittle bank.”
The Co-operative also published a national advert to reaffirm that the bank will continue with its ethical stance, although concerns have been raised that this may not be possible. Peter Marks, former CEO of the Co-op Group, previously commented, “From a banking perspective, the ethical initiative doesn’t apply anymore.”
Investors must now vote on whether they back the proposed rescue plan.