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 nearly 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 Co-operative Bank said in a statement on Thursday that 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,” the statement said.
The deal would more than double the size of Coventry’s 2 million-strong membership, by adding Co-operative Bank’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, with Co-operative offering a smaller portfolio of £19.7bn.
A takeover would also bring the Co-operative back to its mutual roots, as Coventry Building Society is owned by its members.
Coventry emerged as an unexpected bidder earlier this month, with Co-operative Bank having so far attracted suitors in the specialist banking space, including Shawbrook and Aldermore Bank, both of which approached the lender this year.
The lender has been fielding takeover offers since at least 2020, when it was approached by 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 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.
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The Co-op Bank traces its roots back to the late 1800s, when it was meant to provide financial services to the wider co-operative movement in Britain. 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 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.
Despite entering into exclusive talks, the Co-operative Bank’s hedge fund owners are thought to be keeping an open mind, and could even consider rebuffing the Coventry deal in favour of a separate tie-up or takeovers of its own. In 2021, the Co-operative Bank boldly offered £1bn to acquire rival TSB, but was turned down by its Spanish owner, Sabadell.
