Is the Bank’s acquisition plan sound?

Following the concern expressed by Co-op members about the plan to sell off the new Co-op building in Manchester, Patrick Jenkins in London and Andrew Bounds in Manchester reported for the Financial Times yesterday that the Co-operative Bank has a ‘capital hole’ of up to £1bn, which is undermining its planned acquisition of more than 600 Lloyds Banking Group branches.

News of the capital gap emerged from regulators’ analysis of bank balance sheets after the Bank of England’s Financial Policy Committee suggested last November that the shortfall across the sector could be up to £50bn. The Financial Services Authority is expected to outline individual deficits in the coming weeks.

According to ‘people close to the issue’, the Co-op group is considering a number of potential divestments to bridge its capital gap:

  • offloading its non-life insurance business;
  • selling its pharmacies business;
  • releasing capital through selling off parts of the bank’s loan or mortgage book;
  • and selling its new HQ building.

It is also about to complete the sale of its life business to Royal London for about £200m.

The Co-op said its capital levels were above regulatory minimums but declined to comment further other than to say it was still aiming to complete the Lloyds branch deal. Lloyds said: “We are continuing negotiations with Co-op and are making good progress in creating a standalone challenger bank.”

Some sources say that another mutual investor may be invited to join the Co-op’s bid.

 

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