Coventry Building Society is in exclusive talks to potentially buy the Co-operative Bank from its hedge fund owners, in a move that would return the ethical bank to member ownership and create a high street challenger with almost 5 million customers.
It signals the most serious sign yet that the Co-operative Bank’s hedge fund owners could exit the bank, after spending £700m on rescuing it in 2017.
The bank said on Thursday it had received “non-binding proposals” from Coventry and planned to use the exclusive talks to “better value the merits of a combination”.
“There is no certainty that these exclusive discussions will result in a transaction. A further update will be provided in due course,” it said.
The deal would more than double the size of Coventry’s 2-million-strong membership, by adding Co-operative’s 2.7 million retail customers and 94,000 business clients to its roster. It would also add a further 50 branches to its existing network of 64, and create a combined mortgage portfolio worth £69bn. Coventry’s mortgage book is valued at £49bn, while Co-operative’s is £19.7bn.
A takeover would also bring the Co-operative back to its mutual roots, as Coventry is owned by its members.
The building society emerged as an unexpected bidder this month, with Co-operative having so far attracted suitors in the specialist banking space, including Shawbrook and Aldermore, both of which approached the lender this year.
The lender has been fielding takeover offers since at least 2020, when it was approached by the New York-based private equity firm Cerberus Capital Management.
But its owners – Silver Point Capital, GoldenTree, Anchorage Capital, JC Flowers and Bain Capital Credit, Cyrus Capital and the fund manager Invesco – have been more open to a deal since the bank returned to profit in 2021, which has helped improve its potential price tag. In a sign of its improving fortunes, the Co-operative Bank, which had been offered £270m by Cerberus in 2020, could now reportedly fetch upwards of £800m if it were to be sold.
The bank traces its origins to the 1872 establishment of the Co-operative Wholesale Society, the body that would become the Co-operative Group, and was meant to provide financial services to the wider co-operative movement in Britain, in which member-owned businesses worked for the common good.
But it ran into trouble in 2013 when a £1.5bn hole was discovered in its accounts after its disastrous takeover of the Britannia building society in 2009. The problem resulted in the bank separating from the Co-operative Group and being rescued by the consortium of hedge funds, which took full control in 2017.
Its reputation also suffered after the former chair, the ex-Labour councillor and Methodist church minister Paul Flowers – nicknamed the “Crystal Methodist” – pleaded guilty to possession of cocaine, crystal meth and ketamine in 2014.
In 2019, the bank agreed to formally recognise a customer “union” aimed at protecting its ethical policies, which was formed out of the Save Our Bank campaign after the Co-operative Bank’s near collapse in 2013. By February last year, it had returned to profit for the first time in a decade and was able to triple its bonus pot for bankers, just in time for its 150th anniversary.
Despite entering into exclusive talks, the Co-operative Bank is thought to be keeping an open mind and there is no guarantee that the discussions will lead to a tie-up if it does not provide the right value for its owners. The bank has considered takeovers of its own in that pursuit, and in 2021, boldly offered £1bn to acquire rival TSB, but was turned down by the high street bank’s Spanish owner, Sabadell.
