The Co-op Bank is in talks with Coventry Building Society over a merger that would return cross-ownership to the once troubled lender.
It said yesterday it was in “exclusive discussions” with Coventry, Britain’s second-largest construction company after Nationwide, over a deal.
That would put Co-op Bank back under mutual ownership after its bailout by hedge funds, creating a group with almost five million customers. Co-op Bank’s owners have said they are looking at “potential strategic opportunities”.
The bank came close to collapse in 2013 when a £1.5 billion black hole was discovered in its finances following a troubled merger with construction company Britannia in 2009.
It split from the Co-operative Group, which retained a 20 percent stake until 2017, and was rescued by hedge funds.
Merger talks: Co-op Bank told investors it is in ‘exclusive discussions’ with Coventry – Britain’s second largest construction company after Nationwide – over a potential deal
The current owners are Silver Point Capital, Golden Tree, Anchorage Capital, JC Flowers, Bain Capital Credit, Cyrus Capital and Invesco.
The problems of the 151-year-old bank forced ex-chairman Reverand Paul Flowers – then a Methodist minister – to resign after just three years.
Months later, the former Labor councilor was involved in a sex and drugs scandal after he was caught on camera buying Class A drugs, including crystal meth.
The Mail on Sunday expose in November 2013 dubbed him ‘the Crystal Methodist’.
The bank became profitable again two years ago and will more than quadruple profits in 2022 under CEO Nick Slape. Aldermore Bank and Shawbrook Group were rumored to be considering a bid this year.
The bank has been the target of offers since at least 2020, when it was approached by US private equity firm Cerberus.
But its owners are reportedly more open to offers since it returned to profit in 2021. Cerberus offered £270 million three years ago, while Shawbrook submitted a bid of £800 million, according to reports.
AJ Bell investment director Russ Mold said a deal would be “a welcome return to calmer waters after a difficult decade”.
A merger would create a lender with almost 5 million retail customers, bringing together Co-op Bank’s 2.5 million customers and Coventry’s 2 million members.
Co-op Bank bought Sainsbury’s Bank’s mortgage portfolio for £464m in August, taking on around 3,500 customers, while Coventry manages almost £50bn of mortgages and more than £45bn of savings.
It reported higher profits this year due to UK interest rates – at a 15-year high – and paid more to savers than average.
Co-op Bank said: ‘This period of exclusivity will allow society and the bank to better assess the benefits of a combination.
‘It is not certain that these exclusive discussions will lead to a transaction. A further update will be provided in due course.”
Coventry said a deal would only be reached “if the association’s board decides it is in the best interests of current and future members.”
