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Britain's struggling Co-operative Bank puts itself up for sale
February 13, 2017 / 7:42 AM / 10 months ago

Britain's struggling Co-operative Bank puts itself up for sale

LONDON (Reuters) - Britain’s Co-operative Bank, rescued from the brink of collapse by a group of hedge funds in 2013, has put itself up for sale after struggling to meet regulatory capital requirements.

The bank said on Monday that it had made considerable progress implementing a turnaround plan, cutting its cost base by a fifth since 2014, but it still expects to make a “significant loss” for last year.

It has not made a profit since 2011 and building up capital has proved difficult given low interest rates, it said.

“As a result, and having concluded its annual planning review, the board is today commencing a sale process, inviting offers for all of the issued ordinary share capital in the bank,” the lender said.

The bank’s privately owned shares are rarely traded, making valuation difficult, but disclosure in September by Co-operative Group , the British supermarkets to funeral services group which owns a fifth of the bank, offered a window into its declining fortunes.

Co-operative Group wrote down the value of its stake in the bank from 185 million pounds to 140 million, implying a total value for the lender of 700 million pounds.

The Bank of England’s Prudential Regulation Authority (PRA), which regulates Co-operative Bank, said it welcomed the measures announced on Monday.

“We will continue to assess the bank’s progress in building greater financial resilience over the coming months,” the PRA said in a statement.

The Co-operative Bank, which has four million customers, said it was also considering ways to raise equity capital from existing and new capital providers, and a potential “liability management exercise” of its outstanding public debt.

People walk past a branch of the Co-Operative Bank in central London, Britain August 20, 2015. Britain's Co-Operative Bank warned it wouldn't make a profit until at least 2017 after its pretax loss nearly trebled in the first half, making a stock market listing unlikely in the short term. REUTERS/Paul Hackett

TROUBLE AGAIN

It is the second time that Co-op bank has sought outside help, after it nearly folded in 2013 with a 1.5 billion pound hole in its capital after losses from problem real estate loans.

Former chief executive Barry Tootell was banned for life by the Bank of England last year from holding senior jobs in the sector for his role in prioritising profit at the expense of stability at the lender when it came close to collapse, the first time British regulators have barred a former bank CEO.

Former chairman Paul Flowers was dubbed the “Crystal Methodist” after pleading guilty to drug charges when running the bank.

The bank was rescued in 2013 by bondholders, mainly U.S. hedge funds, who bet that rising interest rates and a cost-cutting turnaround plan would improve the bank’s fortunes and make them a return on their investment.

Its bonds fell to historic lows last month after a warning on Jan. 26 that it would not meet capital requirements by 2020.

The bank’s immediate issue is the repayment of 400 million pounds’ worth of bonds that mature in September.

While the bank has enough cash to repay the debt, it would likely have to pay very high interest rates to issue new bonds to replenish its funds, investors told Reuters.

The bank has hired Bank of America Merrill Lynch and UBS to run the sale process.

Reporting by Huw Jones, additional reporting by Maiya Keidan and Lawrence White; Editing by Rachel Armstrong, Jane Merriman and Susan Fenton

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