After months of instability and uncertainty, the Co-operative Bank has once again managed to stabilise itself. The discovery of a £1.5 billion hole in the bank’s capital in June led to serious concerns about its future.
The bank once again looks set to continue operating. The bank has now successfully completed its Liability Management Exercise (LME), which has generated equity from £1 billion worth of bondholders’ capital. After a court meeting and series of votes from bondholders, this key recapitalisation move has now successfully been put in place.
The remaining half a billion pounds in the equity hole shall be filled through a combination of sources. This will include funds from capital sales, savings on interest, and funds from majority stakeholder the Co-operative Group.
However, as a result of the LME, the institution is now no longer purely “The Co-operative Bank.” While the Co-operative Group shall remain the single largest investor and the brand shall remain in place, the bank’s shares will now be divided with other stakeholders. The Co-operative Group previously held complete ownership of the bank, but now own just 30% of shares.
The remaining 70% of shares will be divided among bondholders such as Monarch Alternative Capital. However, it is worth noting that no more than 9.9% of the bank’s equity will go to any single stakeholder. As such, while the Co-operative Group’s ownership is significantly reduced, they will still be the biggest single shareholder more than three times over.
The Co-operative Group’s ethical remit will also remain in place, having been incorporated into the articles of association for the bank.
While the bank’s future now looks more secure, there is still a lot of work to do. When the LME was unveiled last month, head of the bank’s management team Niall Booker confessed that it could take five years before the bank once again turns profitable.
The reputation of the bank has also been significantly damaged. Alongside the significant financial instability the bank has experienced, people’s opinions have also been tarnished by allegations of Class A drug use against the bank’s former chairman. In the wake of these embarassments, the bank has seen the loss of some customers.
The bank now faces several further steps. 15% of the bank’s branches are to be closed. This represents almost 50 individual branches out of the bank’s total of 324. The bank’s IT systems are also set for a massive overhaul.
The bank is also set to enter into negotiations with the Financial Conduct Authority, regarding a potential listing on the stock market next year.
