London - Co-Operative Bank scrapped
plans to sell itself, saying it has reached agreement with investors on most of
the main points of a recapitalization plan.
A proposal from its
bondholders would allow Co-Op Bank to meet its capital requirements and remain
a stand-alone entity, the Manchester,
England-based bank said in a statement on Monday. The parties are in “advanced”
talks over separating the bank from the pension obligations of the Co-Op Group
supermarket chain, its former parent company.
Without a sale, Co-Op Bank
has previously said it needs to raise as much as 750 million pounds ($957
million) to avert Bank of England regulations forcing a so-called resolution of
the lender. Under that scenario, the central bank would broker a fire sale of
assets with steep losses for bondholders.
Co-Op Bank’s debt investors
are led by Silver Point Capital, GoldenTree Asset Management, Cyrus Capital
Partners and BlueMountain Capital. The investors want to extricate the bank
from the Co-Op Group’s retirement plan, shedding pension liabilities for former
supermarket workers should the retailer fail, according to people familiar with
the matter. The burden of the pensions could make it harder to ultimately sell
the lender as a standalone operation in future, the people have said.
The bank had previously
drawn interest from a consortium including Qatar’s Al Faisal Holding and
Interritus Ltd., which is run by German financier Patrick Bettscheider,
according to people familiar with the matter. The CEOs of several small British
lenders from OneSavings Bank Plc to Metro Bank Plc have also said they would be
interested in acquiring assets if the BOE ultimately breaks up the lender.
The bank also said Monday
its capital requirements set by the BOE’s Prudential Regulation Authority would
fall further than anticipated as it makes progress on its turnaround plan. The
bank’s so-called Pillar 2A buffer, a financial reserve linked to a
lender’s idiosyncratic risks, will probably be set below 9.5 percent of
risk-weighted assets.
Co-Op bank also said it’s
planning to reduce risk-weighted assets to as little as 5 billion pounds, from
a previous target of about 6 billion pounds, as part of its strategic plan due
to end in 2021. The lender is pushing for a “mid-single digit” return on
equity, a measure of profitability, in the final year, below targets of at
least 10 percent set by other major British lenders.
The bank doesn’t expect to
pay a dividend until at least 2021, a year later than previously envisaged,
while there has also been an increase in the costs of the capital raise
process, the company said.