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People pass by a branch of The Co-operative Bank in London yesterday.
LONDON: Britain’s mutually-owned Co-operative Group will hand control of its banking arm to creditors including US hedge funds in order to seal a £1.5bn ($2.4bn) rescue of the country’s seventh-biggest bank.
The Co-op Group, which currently owns the Co-operative Bank outright, has bowed to the demands of a group of bondholders, including US hedge funds Aurelius Capital and Silver Point Capital, and agreed to a restructuring which will leave it with a 30 percent stake in the bank.
The move risks alienating the bank’s 4.7 million customers, many of whom were drawn to it because of its perceived ethical focus, and some using social networking site Twitter threatened to leave if the change of ownership went ahead. “We’re planning to move away from Co-op Bank. Anyone know any ethical bank business current accounts?” said one.
Another suggested an action group or petition be set up to “let hedge funders know if they take control of Co-op Bank all signed up will go to other banks”.
Co-op Group Chief Executive Euan Sutherland said that he had reached an agreement in principle to save the bank. The group, which also runs supermarkets, a travel agency and funeral services, added it remained committed to preserving the bank’s ethical focus. One source said the bank would continue to be called “Co-op” after bondholders take control and would retain its existing management.
The Co-op Bank hit trouble after racking up big losses on commercial property. Many of the bad loans were acquired through its takeover of the Britannia Building Society in 2009. In June, the Co-op Group unveiled a plan to raise money from asset sales, bank loans and slicing the value of bonds in a bid to plug a £1.5bn capital shortfall at the bank.
Reuters
