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
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.